One year since the "reciprocal tariffs"—did the Americans ultimately bear all the costs?

The market has long held a misconception: that high tariffs will force foreign exporters to cut prices, thereby protecting the U.S. economy. However, CITIC Construction Investment (CSC) points out: In this tariff game, the ones paying are U.S. importers, and ultimately U.S. consumers.

On February 25, CSC released a research report indicating that the “pass-through rate” of 2025 tariffs is as high as 92%. This means foreign exporters almost never reduce prices proactively; for every $100 increase in tariff costs, U.S. importers bear $92. More importantly, as inventories run out, this cost pressure is rapidly spreading to consumer price indices (PCE). By December 2025, cumulative tariffs have pushed up the YoY PCE by about 0.72 percentage points, raising the actual PCE to 2.90% (compared to 2.18% if there were no tariffs).

Macroeconomic impacts for investors:

2. Inflation stickiness is severely underestimated: The additional 0.72 percentage points of inflation caused by tariffs means the inflation baseline the Fed faces is more stubborn than expected, and market expectations for rate cuts may be overly optimistic.

3. Corporate profit margins face compression: In high pass-through industries (such as toys, furniture, clothing), U.S. importers initially absorbed huge costs. If they cannot fully pass on more than 65% of this extra inflation to consumers, profit expectations for related retailers and importers will be significantly revised downward.

4. Seeking safe havens with “domestic replacement capacity”: Only industries with large U.S. domestic capacity—such as crop production and basic chemicals—force foreign exporters to cut prices to bear tariffs. This means that in trade frictions, U.S. domestic defensive sectors with high substitutability are more certain.

First-level transmission: Exporters refuse to cut prices, U.S. importers bear 92% of tariff costs

The first part of the report hits the core: who really bears the tariff costs? Using HS10-level import data, CSC built a large panel dataset with 5.35 million observations (covering 8 countries, 20,868 products, spanning 108 months through December 2025).

The regression model’s baseline conclusion is: β ≈ -0.08, meaning about 92% of the tariff pass-through rate. For every 1 percentage point increase in tariffs, exporters on average only reduce prices by 0.08 percentage points. Exporters absorb only 8% of the impact, with the remaining 92% falling on U.S. buyers.

Country-specific data is even more striking:

• China: Pass-through rate as high as 94%. For every $100 of tariffs, U.S. importers bear $94, while Chinese exporters only bear $6.

• Japan and ASEAN: Pass-through exceeds 100% (Japan 1.12, ASEAN 1.19). This means these exporters did not cut prices—in fact, they increased prices by leveraging tariff barriers to expand profits.

Industry divergence: Who is profiteering, who is taking the hit?

Further analysis of 44 NAICS industry codes (covering 83% of import volume) shows an average pass-through rate of 83%, with a median of 97%.

• High pass-through industries (U.S. companies absorb all): Metalworking machinery (134%), toys (105%), furniture (105%), apparel (104%), agricultural machinery (111%). The report highlights that 80% of toys in the U.S. come from China, and 70% of car seats and interiors are made in Mexico. Both sectors have pass-through rates near or above 100%, as importers simply cannot find substitutes.

• Low pass-through industries (exporters cut prices): Crop production, communications equipment manufacturing, basic chemicals. Why are exporters willing to absorb tariffs? The report reveals: domestic capacity. Crops and basic chemicals are sectors where U.S. exports exceed imports, with substantial domestic production capacity. Foreign exporters face high demand elasticity; if they don’t lower prices, they risk being completely squeezed out of the market.

Second-level transmission: delayed explosion, inflation bill handed to U.S. consumers

Where do the costs borne by importers ultimately go? Using a five-step transmission model, the report tracks how tariffs permeate into PCE (personal consumption expenditure) inflation in real time.

The data reveals a dangerous “lag trap”:

• Initial phase (like boiling a frog): Within 2-3 months of tariff implementation, effects are nearly invisible (transmission coefficient β only 0.02-0.08, not statistically significant). During this period, U.S. companies are depleting old inventories.

• Post-inventory depletion surge: From June-July onward, as low-cost inventories run out, the transmission coefficient rapidly rises—becoming statistically significant at 1% in July, soaring to 0.55 in September, and reaching 0.65 by December.

• Final inflation impact: β=0.65 means that, in theory, 65% of the 1% price increase caused by tariffs has translated into “excess inflation” for consumers.

The macro picture shows: By December 2025, cumulative tariffs have increased PCE YoY by about 0.72 percentage points. The actual December PCE YoY is 2.90%. If we subtract the tariff-driven effect, the true underlying PCE inflation is only about 2.18% (close to the Fed’s 2% target). The inflation contribution from tariffs worsened from just +0.06pp in April to +0.72pp at year-end.

Risk warnings and disclaimers

Market risks are present; invest cautiously. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their circumstances. Investment is at your own risk.