"Other countries are paying us hundreds of billions of dollars in tariffs." Donald Trump has repeated this claim dozens of times. It sounds straightforward: the US puts tariffs on Chinese goods, and China pays up.
There's just one problem: it's not true. And this isn't a matter of political opinion. It's a matter of how customs invoices work.
A tariff is a tax paid by the importing company to its own government. Not by the exporting country. The Federal Reserve Bank of New York found that nearly 90% of Trump's tariffs were paid by American firms and consumers in 2025. The Kiel Institute puts the figure at 96%.
Step 1: What Is a Tariff, Mechanically?
A tariff is a tax levied on goods when they cross a national border. When the US imposes a 25% tariff on Chinese steel, here's what happens:
- An American company (say, a construction firm) orders steel from a Chinese manufacturer. The agreed price is $1,000 per ton.
- The steel arrives at a US port. US Customs and Border Protection calculates the duty: 25% of $1,000 = $250.
- The American importer writes a check for $250 to the US Treasury.
- The Chinese manufacturer receives its $1,000. China's government receives nothing.
This is not a simplification. This is literally how every tariff payment works. The importing company pays its own government. The exporting country is not billed, invoiced, or charged in any way.
Trump's claim vs. reality
Claim: "China is paying us billions and billions of dollars in tariffs."
Reality: American importers paid $264 billion in customs duties in calendar year 2025 — to the US Treasury. China received $0 of that. The money came from American companies, who then raised prices to cover the cost.
Step 2: Who Actually Pays? Follow the Money
When an American importer pays a $250 tariff on $1,000 of steel, that cost doesn't just vanish. It gets passed along the chain. The question is: how much goes to each link?
The Federal Reserve Bank of New York studied this in detail for 2025, and here's what they found:
| Who bears the cost | Jan–Aug 2025 | Sep–Oct 2025 | Nov 2025 | Projected mid-2026 |
|---|---|---|---|---|
| US importers (absorb the cost) | 64% | 22% | 14% | 8% |
| US consumers (higher prices) | 22% | 58% | 62% | 67% |
| Foreign exporters (lower prices) | 14% | 20% | 24% | 25% |
In the first months, importers absorbed most of the tariff cost. But that's not sustainable — no business can permanently eat a 25% cost increase. Over time, importers passed the cost to consumers through higher prices. By mid-2026, two-thirds of the tariff cost lands on American consumers and only a quarter on foreign exporters.
Even in the most optimistic reading of the data, foreign exporters absorb at most 25% of the tariff cost. The remaining 75% is paid by Americans — either as direct costs to importers or as higher prices for consumers.
Step 3: The Real Cost to American Families
Multiple independent studies have calculated what tariffs cost the average American household:
| Source | Estimated annual cost per household | Year |
|---|---|---|
| Federal Reserve Bank of New York | $1,000 | 2025 |
| Tax Policy Center | $1,230 | 2026 |
| National Taxpayers Union | $2,048 | Projected (full tariffs) |
| Yale Budget Lab | $1,500 | 2026 |
Where do these costs show up? In everyday prices:
- Beef: +16% between Jan–Dec 2025
- Coffee: +20% in the same period
- Fruits: +6% as a direct result of tariffs
- Fish and seafood: +6%
- Retail imports overall: +7 percentage points
Tariffs hit the poor hardest
Tariffs are a regressive tax. Because they're effectively a consumption tax, and lower-income families spend a higher share of their income on goods, the burden falls disproportionately on those who can least afford it.
The Tax Policy Center found that Trump's tariffs raised the average federal tax rate by 1.1 percentage points for the bottom income quintile, compared to 0.9 points for the top quintile. In dollar terms, a family earning $30,000/year feels the $1,200 tariff cost far more acutely than a family earning $300,000.
Step 4: "But the US Collects Revenue!" — Yes, From Americans
Trump often points to tariff revenue as proof that the policy works. And the numbers sound impressive:
- 2024: $79 billion in customs duties
- 2025: $264 billion in customs duties (up 234%)
- Jan 2026 alone: $34.3 billion (nearly double the 2025 monthly average)
But this revenue comes from American importers paying taxes to the American government. It's functionally identical to a sales tax increase. If the government raised sales tax by 15% and said "look at all this revenue!", no one would claim that foreign countries were paying it.
Yes, tariff revenue increased from $79B to $264B. But that money came from American companies and consumers, not from China, Europe, or Canada. It's a tax increase on Americans, collected at the border instead of at the cash register.
Step 5: The Trade Deficit Myth
Trump has argued that tariffs would reduce the trade deficit — the gap between what the US imports and exports. This hasn't happened either.
A trade deficit is not "losing money." When an American buys a $1,000 TV from South Korea, the US gets a TV and South Korea gets $1,000. Both sides got what they wanted. The trade deficit simply reflects the fact that Americans buy more foreign goods than foreigners buy American goods — which is partly because the US dollar is the world's reserve currency, making imports cheap.
Tariffs don't fix trade deficits because:
- Retaliation: Other countries impose counter-tariffs, reducing US exports
- Substitution: Importers shift to other countries rather than buying American
- Currency effects: Tariffs strengthen the dollar, making exports more expensive
Despite $264 billion in tariff revenue in 2025, the US trade deficit did not meaningfully shrink.
Step 6: The Supreme Court Steps In
On February 20, 2026, the US Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that the IEEPA (International Emergency Economic Powers Act) does not authorize the president to impose tariffs.
Chief Justice Roberts, writing for the majority and joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson, held that IEEPA authorizes the president to "regulate importation" but contains no reference to tariffs or duties. Congress has always used explicit language when delegating tariff authority.
This struck down the "Liberation Day" tariffs (April 2025), the fentanyl tariffs on Canada and Mexico, and the reciprocal tariff regime — essentially most of Trump's tariff architecture.
What happened next
The same day, Trump pivoted to Section 122 of the Trade Act, imposing a 10% "temporary import surcharge" — which he immediately raised to 15%. But Section 122 has built-in limits: 15% maximum rate and a 150-day duration (expiring July 24, 2026) unless Congress acts to extend it.
The Treasury Department is now required to refund unliquidated duties collected under the struck-down IEEPA tariffs.
Step 7: History's Warning — Smoot-Hawley
We've seen large-scale tariffs before. In 1930, the Smoot-Hawley Tariff Act raised tariffs on over 20,000 imported goods. The results were catastrophic:
| Metric | Before (1929) | After (1932–34) | Change |
|---|---|---|---|
| US imports from Europe | $1,334 million | $390 million | −71% |
| US exports to Europe | $2,341 million | $784 million | −67% |
| World trade overall | — | — | −66% |
| Countries that retaliated | — | 24 countries | — |
Canada retaliated with tariffs on products representing a third of US exports. France and Spain slapped tariffs on American cars. The result was a spiral that deepened the Great Depression and destroyed trade for nearly a decade.
This isn't ancient history. The same dynamics play out today: when the US raised tariffs on EU goods, the EU prepared retaliatory tariffs of up to 30% on $100 billion in US imports.
Step 8: What About Europe and Denmark?
In January 2026, Trump announced 10% tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland — linked to the Greenland dispute. He threatened to raise them to 25% if a "deal" wasn't reached by June 1.
The tariffs were paused on January 21 before taking effect, but the threat revealed how tariffs are used as political weapons rather than economic tools.
If implemented, these tariffs would have:
- Raised prices on European goods for American consumers
- Triggered EU retaliatory tariffs on US goods
- Reduced GDP in both the US and Europe by an estimated 0.25 percentage points
- Disrupted pharmaceutical exports — the EU's largest export category to the US at €84.4 billion
The Bottom Line: Tariffs in 5 Sentences
1. Tariffs are a tax paid by the importing company, not the exporting country.
2. About 90% of the cost falls on American firms and consumers.
3. They cost the average US household $1,000–$2,000 per year.
4. They are regressive — they hit the poor hardest.
5. They have not reduced the trade deficit, and historically cause retaliatory spirals that damage all parties.
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