Tariffs Added 2.9 Points to Goods Inflation as Trade Deals Stall

The evidence on tariffs and prices is now hard to dispute

For nearly two years, the White House and its critics have argued about who pays for President Donald Trump's tariffs. A new study from the Federal Reserve Bank of New York gives the clearest answer so far, and it does not favor the administration's position. It arrives as Washington's trade deals with India, Mexico and China move forward at different speeds.

Economists Mary Amiti, Sebastian Heise and David Weinstein estimate that by February 2026, tariffs had added 2.9 percentage points to goods price inflation. Without them, goods prices would have fallen slightly.11 The team looked at 67 categories of goods. CNBC described the counterfactual as a decline of almost 1 percent in those categories if the levies had never been imposed.14

The main result is a rule of thumb. For every one-point increase in the average tariff, consumer goods prices end up about a quarter of a percent higher a year later.11 Quartz and CNBC both put the share of 2025 tariff increases that reached store shelves at roughly 26 percent.1415 Coverage across outlets agrees on these figures, from the Washington Post to UPI and CFO Dive.121620

Foreign exporters are not paying

The import-price result matters most politically. The researchers found that foreign exporters cut their prices very little. Nearly 90 percent of the 2025 tariffs showed up in U.S. import prices, almost one-for-one within the first month.11 That still held after adjusting for the weaker dollar.11 Quartz reached the obvious conclusion: foreign sellers carried very little of the cost.15

The White House has not changed its message. A spokeswoman told CNBC that the administration has always held that foreign exporters ultimately bear the cost of tariffs.14 White House economic adviser Kevin Hassett pushed back on earlier New York Fed tariff research in February. He argued the economists ignored product substitution and pointed to what he called a $1,400 rise in real wages.17 Those are arguments about broader welfare. They do not refute the pass-through numbers, and on the narrow question of who pays at the border, the evidence points clearly to American importers.

Tariffs also raise prices on American-made goods

The study's less obvious finding may matter more for the long run. About two-thirds of the price effect comes directly from more expensive imported goods. The other third comes from goods made in the United States.11 Domestic manufacturers pay more for imported parts and materials. Some also raise their own markups when competing imports cost more. Of those two effects, higher input costs are the larger one.11

The two channels move at different speeds. Import prices react almost immediately. Domestic producer prices change little in the first six months and then roughly double over the next six.11 Retail markups dilute the effect: a 10 percent tariff-driven rise in import and producer prices raises retail prices by about 5.6 percent, because distribution costs make up about half of what shoppers pay.11 Under the authors' scenario, a 10 percent tariff on all imports would raise consumer goods prices by 2.6 percent after a year.11

Taxpayers for Common Sense focused on the lasting effect. It argued that much of the price increase would stay even if tariffs were cut or struck down again.18 The Fed authors make a similar point. They expect the tariff contribution to annual goods inflation to fall to about zero and then turn negative as the large 2025 increases drop out of the year-over-year comparison. The price level, however, stays higher.11 In plain terms, inflation from tariffs is fading, but the higher prices are not going away.

Consumer price data shows mixed tariff effects

The September consumer price report fits that picture. Headline inflation rose to 3.7 percent from a year earlier, driven mainly by a 34 percent jump in gasoline prices.13 Signs of tariffs in the data were uneven. Toy prices rose 4.2 percent in the month, while apparel rose only 0.3 percent and household furnishings fell 0.2 percent.13 The New York Times reported that strong demand linked to artificial intelligence pushed up consumer electronics prices.13 That makes it harder to attribute goods inflation to trade policy alone.

The reporting differs on emphasis. Hoodline described businesses still planning price increases. It cited a July regional Fed survey in which 47 percent of service firms and 44 percent of manufacturers that pay tariffs intended to raise prices.17 The September category data looks calmer. Both can be true. The Fed's own timeline predicts slow domestic pass-through while the direct import effect has already peaked. On this evidence, tariffs are no longer the main driver of inflation. Energy is, but tariffs keep the floor under goods prices higher.1113

Consumers are paying attention anyway. University of Michigan survey data showed year-ahead inflation expectations rising to 4.7 percent in October. That is well above the 3.4 percent recorded in February, before the Iran conflict began.16 The Federal Reserve raised its benchmark rate by 25 basis points to 3.75–4.00 percent on September 16, its first hike in three years. Hoodline linked that decision partly to tariff pressure.17

The legal reset left a patchwork of tariffs

The tariff system has changed sharply since 2025. On February 20, the Supreme Court ruled 6-3 that the president had exceeded his authority with emergency tariffs imposed in peacetime.20 A temporary 10 percent global surcharge under Section 122 replaced them. It took effect February 24 and expired July 24.6 Current duties now rest on other laws. They include Section 232 tariffs of up to 50 percent on steel and aluminum and tariffs on autos and semiconductors. They also include Section 301 duties of 10 to 12.5 percent on goods from 60 economies. In addition, Section 338 levies of 50 percent apply to some Canadian goods.6

The court ruling led to billions of dollars in refunds. The money goes to importers, not to the shoppers who paid the higher prices.1417 Citing a Center for American Progress analysis, Hoodline said retailers that passed tariffs on to customers are keeping the refunds.17 This is where the policy's costs and benefits fall most unevenly.

Trade deals: progress on paper, delays in practice

The trade-deal picture is less settled than official statements suggest. Reporting on India shows the split clearly. One Reuters report quoted Trade Secretary Rajesh Agrawal saying the first phase had been finalised and was in legal drafting.24 A later Reuters report quoted Trade Minister Piyush Goyal saying it was "going through the final contours." He added that India would proceed only if its exporters gained an edge over rivals such as Bangladesh, Vietnam and Indonesia.21

The February framework had already cut the tariff on most Indian goods to 18 percent from 50 percent.21 A new U.S. law now allows tariffs of up to 100 percent over India's purchases of Russian oil.21 U.S. envoy Sergio Gor said Trump could decide on those measures within ten days and that "big items are done."29 India's position is better read as conditional than finished. The deal still depends on how Washington treats India's competitors and on the decision about Russian oil.

Talks with Mexico appear to have stalled. According to the Wall Street Journal, as relayed by Reuters, the two countries had been nearing a deal to lower U.S. levies on steel, aluminum and autos in exchange for Mexican concessions. Commerce Secretary Howard Lutnick reportedly objected to significant cuts to the 25 percent auto tariff and the 50 percent metals tariffs.23 Mexico's deputy trade minister insisted that talks were progressing.23 Investing.com noted that the deal was seen as a path toward renewing the U.S.-Mexico-Canada Agreement.28 That raises the cost of a stall.

China: a narrower trade truce

The U.S.-China conflict has calmed but has not been resolved. During Xi Jinping's state visit on September 26, the two sides agreed to tariff cuts on $30 billion of non-sensitive goods.22 They also created a new Board of Trade.8 The goods identified for cuts include toys, small appliances, bedding and car seats entering the U.S., and nuts, fruit, wine and beef entering China.5 A Los Angeles Times commentary dismissed the board as built on buzzwords. Chinese officials describe it as a platform for expanding cooperation.5

Sources differ on how long the truce lasts. One customs-industry tracker described the September 23 extension as running into 2027.7 Other reports call it a two-month extension to January 10.810 The more detailed accounts point to the shorter window, so a new deadline is approaching.

Trade volumes are recovering, though from a lower base. Chinese analyst He Weiwen cited customs data showing June–August two-way trade at 89.4 percent of its 2022 monthly peak.8 He also noted that the actual U.S. tariff rate on China, 27.3 percent in June, was the highest of any major partner.8 An analysis on Seeking Alpha estimated that trailing twelve-month trade is still $19.3 billion below a no-tariff path.3 The Port of Los Angeles handled record container volumes in September, even as China's share of its containerized imports fell to about 40 percent.310

Overall, tariffs have shifted where goods come from more than they have brought production home. Kearney found that direct imports from China fell by $135 billion in 2025, while other Asian low-cost countries gained $193 billion.6

Analysis

The pattern is consistent. Tariffs have raised prices for American consumers, including on goods made in the United States, and those prices will stay high even as the tariffs themselves change.1118 Trade deals have cut headline rates from their 2025 peaks, but they remain partial, conditional or stuck.21238 With the midterm elections on November 3, the gap between what the administration says about who pays and what the New York Fed found has become a political issue as well as an economic one.2013