Americans Pay 90% of Tariff Costs as Supreme Court Forces Policy Reset
New research traces $287 billion in customs revenue to domestic consumers and businesses, while Bank of Japan holds rates steady amid diverging central bank policies.
US consumers and businesses absorbed 90% of the Trump administration’s tariff burden through November 2025, according to Federal Reserve Bank of New York research that refutes claims foreign exporters are bearing the cost—a finding that prompted a Supreme Court intervention forcing the White House to rebuild its trade policy from scratch.
The New York Fed study measured tariff incidence across 11 months of 2025 data, tracking how import prices responded to a tariff regime that peaked at 27% in April before Supreme Court action in February 2026 invalidated most levies. Between January and August, US importers covered 94% of costs; by November, foreign exporters absorbed just 14%, down from administration claims of 80%. Wikipedia data shows the US collected $287 billion in customs duties in 2025, up 192% year-over-year, with $97.5 billion collected in Q4 alone—a 281% increase.
The incidence data contradicts White House messaging but aligns with historical tariff research. Fortune reported that Germany’s Kiel Institute found Americans paying 96% of costs, while the Congressional Budget Office estimates 95% domestic incidence. Goldman Sachs analysis in August 2025 showed US businesses bearing 51% and consumers 37%, with projections showing consumer burden rising to 55% by year-end as companies exhausted inventory buffers and passed costs downstream.
Price Pass-Through Hits Durable Goods, Apparel
Import price data reveals uneven transmission across categories. Yale Budget Lab calculations show 76% pass-through to core goods prices and 106% to durables through December 2025, with the overshoot driven by lower import shares and pre-2025 deflationary trends. Apparel prices surged 17-38% depending on methodology, while metals, electrical equipment, vehicles, and computers saw double-digit increases. CNN noted businesses initially absorbed 80% of costs in 2025, but JPMorgan projects that ratio inverting to 20% by late 2026 as stockpiles run dry.
- Manufacturing output: +1.2% (concentrated in nonadvanced durables)
- Construction: -2.4% (crowded out by tariff-protected sectors)
- Agriculture: -1.0% (hit by retaliatory tariffs and higher input costs)
- Overall GDP: -0.1% to -0.3% depending on policy scenario
Currency markets failed to offset tariff costs as economic theory predicts. The dollar weakened 6.3% from December 2024 through January 2026—opposite the expected appreciation—while China’s yuan held flat and Canada’s dollar strengthened 0.5%. Mexico’s peso jumped 11.6%, amplifying import cost Inflation. CEPR research on April’s “Liberation Day” announcement found G10 currencies appreciated as foreign investors sold dollar-denominated assets, undermining the US safe-haven premium.
Supreme Court Ruling Forces Section 122 Pivot
The February 20, 2026 Supreme Court decision in Learning Resources, Inc. v. Trump invalidated $142 billion in tariffs imposed under the International Emergency Economic Powers Act, ruling 6-3 that the president exceeded statutory authority. The administration responded within 96 hours by invoking Section 122 of the Trade Act of 1974, imposing a temporary 10% universal tariff (later raised to 15%) valid for 150 days. Tax Foundation estimates the new regime reduces average household burden from $1,300 to $600-700 annually, while Yale Budget Lab projects importers will seek $142 billion in IEEPA refunds.
Section 122 allows temporary tariffs up to 15% for 150 days to address balance-of-payments deficits or dollar depreciation. The authority expires July 2026 unless extended through alternative legal pathways. USMCA-compliant goods from Canada and Mexico remain exempt, and product-specific carve-outs cover critical minerals, energy, agriculture, pharmaceuticals, and electronics—narrowing the revenue base compared to the invalidated IEEPA regime.
The policy reset drops the effective tariff rate from 16.9% to 9.1%, still the highest since 1946 excluding the 2025 spike. Yale Budget Lab modeling suggests IEEPA refunds will create a temporary fiscal stimulus offsetting negative growth effects in 2026, but long-run GDP remains 0.1% lower—equivalent to $30 billion annually. Manufacturing gains 1.2% output while construction contracts 2.4% and agriculture declines 1%, illustrating sector reallocation beneath flat headline growth. The unemployment rate is projected 0.3 percentage points higher by end-2026.
Equity Markets and Supply Chain Disruption
Corporate earnings calls reveal mounting strain. FinancialContent reported Apple absorbed $800 million to $1.1 billion per quarter in tariff costs through 2025 despite a $500 billion reshoring plan. Walmart issued a “Tariff Cliff” warning in February 2026, noting exhausted inventory buffers forced an immediate 3% price increase on general merchandise. The S&P 500 remains 10% below February 2026 peaks, while European stocks are down 7% as export-oriented sectors face dual pressure from US tariffs and retaliatory measures.
| Source | US Share | Foreign Share | Methodology |
|---|---|---|---|
| NY Fed (Nov 2025) | 86-94% | 6-14% | Import price regression |
| Goldman Sachs (Aug 2025) | 88% | 9% | Pass-through modeling |
| Kiel Institute | 96% | 4% | Export price stability analysis |
| CBO (Feb 2026) | 95% | 5% | Structural estimation |
Trade volumes reflect supply chain restructuring. US imports from China fell 28% in 2025 while exports dropped 38%, according to CNN citing Project44 data. Vietnam’s import share rose to 6.3% of US goods trade in Q3 2025 from 4.5% a year earlier, though October data showed slowing tariff-rate increases as trade diversion plateaued. China’s direct export share to the US collapsed from 18% in 2017 to 9% in 2025, but third-country transshipment masks true sourcing patterns.
Bank of Japan Holds Steady, Signals Caution
In contrast to the chaotic US Trade Policy environment, Bank of Japan kept its policy rate at 0.75% on January 23, 2026, defying one board member’s push for a hike to 1.0%. The decision came days before a snap election and followed a historic bond market rout that sent 40-year yields above 4% for the first time since 2007. Governor Kazuo Ueda signaled further rate increases remain contingent on economic data, with market consensus expecting the next move in October 2026 absent yen weakness past 160 per dollar.
The BOJ upgraded GDP forecasts to 0.9% for fiscal 2025 and 1.0% for 2026, up from 0.7% previously, citing resilient domestic demand and accommodative financial conditions. Core inflation excluding fresh food is projected at 2.7% for fiscal 2025, declining to 1.9% in 2026 as energy subsidies and stable rice prices ease price pressures. CNBC noted the hold reflects political sensitivity around Prime Minister Takaichi’s election gambit and concerns that aggressive tightening could trigger yen carry trade unwinds.
“The bank will continue to raise interest rates if its economic and price forecasts materialize, but we need to check the impact of each rate change before moving again.”
— Kazuo Ueda, Bank of Japan Governor
The US-Japan policy divergence underscores broader fragmentation in global monetary coordination. While the Federal Reserve holds rates steady amid tariff-induced inflation uncertainty, the BOJ faces pressure to normalize policy after three decades of ultra-loose conditions. The 30-year policy rate differential—Japan at 0.75% versus the US at 4.25-4.50%—continues to weigh on the yen, complicating the BOJ’s exit strategy. ING expects gradual hikes toward a 1.25% terminal rate by 2027, contingent on wage growth sustaining consumption.
What to Watch
The Section 122 tariff expires in July 2026, forcing the administration to either negotiate Congressional authorization, invoke alternative trade statutes, or accept revenue loss. IEEPA refund mechanics remain undefined, with over 1,000 companies filing claims on $142 billion in collected duties. Trade negotiations with 60+ countries could yield exemptions or rate reductions, but political capital is finite and retaliation risks escalate with each bilateral deal.
For markets, three catalysts loom: first, the scale and timing of IEEPA refunds, which could inject $100+ billion into corporate balance sheets; second, whether businesses accelerate price increases ahead of July expiration uncertainty; third, how the BOJ navigates its next rate decision with US trade policy still in flux. Currency volatility around the 150-160 yen level could trigger intervention or force the BOJ’s hand on timing. The dollar’s breakdown from its safe-haven role—selling off alongside equities during tariff announcements—signals structural shifts in capital flows that complicate both Fed and BOJ policy transmission. Agricultural exporters face asymmetric retaliation, with Tax Foundation research showing foreign tariffs had “clear negative employment impacts” in the sector during 2018-2019, a pattern repeating as construction and mining also contract to make room for tariff-protected manufacturing.