Few signs of foreign exporters absorbing U.S. tariff hikes

Summary

If foreign exporters were absorbing the cost of tariffs, U.S. import prices would be declining in proportion to the rise in the tariff rate. Yet, nonfuel import prices, which exclude the cost of tariffs, rose 1.2% year-over-year in June. The dollar's slide has likely incentivized foreign suppliers to bump up or hold the line on their invoice prices. With little relief on import prices, domestic firms are stomaching the cost of higher tariffs and starting to pass it on to consumers. We suspect import price growth has room to weaken in the coming months amid weaker demand but do not look for a plunge.

Resisting tariff pressures

Higher tariffs have had a modest effect on overall inflation thus far. The Consumer Price Index was up 2.7% on a year-ago basis in June—a softer pace than at the start of the year. The limited change in the inflation picture comes despite the Trump administration having started to roll out higher tariffs in February. After several escalations, delays and negotiations, we estimate the effective tariff rate is roughly 16% today, up from 2% in 2024.

As a reminder, tariffs are a tax on goods paid by U.S. importers. There are a few ways the cost can be distributed, as we discussed in a report earlier this year. Domestic firms can pass it along via higher selling prices, absorb it via profit margin compression or a combination of the two. Yet, even before products arrive at U.S. docks, foreign suppliers can also indirectly shoulder higher tariffs by lowering their list prices to ameliorate the total cost burden faced by domestic firms. Exporters may provide such relief to maintain market share.

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