.jpg){kind=link}
Working Americans are paying the price.
The financial columnist, Matthew Lynn, is back at it. His latest essay asserts that economists still have egg on their faces because the Trump tariffs are, according to him, being paid by foreign corporations, not Americans. As he writes, Volkswagen took a €5 billion hit, Toyota warned of $9 billion in losses, and Adidas is eating €120 million. Checkmate, free traders.
I already responded to Lynn’s previous attempt at tariff vindication last month. This latest requires a fresh rebuttal, not because the new article is more sophisticated, but because it manages to commit an even more fundamental economic error while ignoring the inconvenient mountain of evidence since “Liberation Day.”
Let’s start with a refresher on Econ 101 and what it really predicts will happen when a nation imposes tariffs.
What Do Tariffs Actually Do?
As Lynn acknowledges, “the tariffs are a tax.” Because they are a tax, they are going to be paid by someone in some form. You can’t have money flowing into the Treasury without someone paying that extra money in some way. Broadly speaking, we can divide the potential payors of American-imposed tariffs into three camps: American consumers, American importers, and foreigners.
One of the oft-cited effects of a tariff is to reduce the amount of imports coming into America. This makes sense and is in fact one of the numerous goals administration officials have pointed to. Insofar as American consumers and importers end up paying the tariff, they will buy less of the now-more-expensive foreign products. We’re already seeing this happen in the US, which Lynn alludes to throughout his article.
If foreigners pay the tariff, they’ll sell less of the now-tariffed goods to the US. This will, as President Trump and others have correctly identified, hurt their bottom line. To offset at least some of this, these countries will try to sell more of their products to their domestic consumers or consumers in countries other than the US. This is exactly what we have seen and what we are seeing, as other countries around the world are securing new trade deals with one another and deliberately excluding the United States from said deals.
So, Lynn is correct to point out that foreign corporations have incurred costs because of the Trump tariffs. However, despite his repeated implication to the contrary, this is not money that goes to the US Treasury. Volkswagen, for example, has raised the price of its 2026 models by up to 6.5 percent, largely due to tariffs, and has indicated that this is just the beginning. That’s more money coming out of American consumers’ pockets. At these higher prices, American consumers are purchasing fewer Volkswagens than last year. Volkswagen’s losses from the tariffs include an almost 30 percent decline in profits from auto sales. Importantly, sales that do not happen count toward the reduced profit that Volkswagen reported but generate no tariff revenue for the Treasury to collect. That Lynn, a financial commentator, does not understand this distinction is deeply troubling.
Who Really Pays the Tariff?
Lynn’s central argument rests on a fundamental confusion between what economists refer to as the “legal incidence” and the “economic incidence” of a tax. Legally, because tariffs are a tax on imports, it is the US importers who must write the check to Customs and Border Protection. But this says nothing about who actually pays the tariff.
For example, when landlords’ property taxes go up, who pays? The landlord will obviously write the check to the county assessor, but unless Lynn thinks that landlords are running charities, that cost gets passed on to tenants in the form of higher rent, less frequent maintenance, or fewer included benefits (utilities or access to designated parking, for example). The legal incidence falls on the landlord, but the economic incidence falls disproportionately on renters, i.e., young Americans already besieged by high housing costs.
Tariffs work the same way. US Customs and Border Protection bills the American importer directly, which is the legal incidence of the tariff. But the economic burden gets distributed among American consumers, American importers, and foreign exporters, depending on the particulars of the individual markets.
Lynn cites the Harvard Pricing Lab finding an approximately 20 percent “pass-through rate,” meaning that American consumers are only paying about one-fifth of the tariff costs. He treats this as a permanent feature of the tariff regime and as proof that foreigners are footing the bill. But the question isn’t who writes the check today, it’s who bears the cost over time. And here, the evidence directly contradicts Lynn’s fables.
As we have seen, pass-through rates are not static, but evolve over time as markets adjust. And every piece of evidence suggests that the pass-through rate has been and is continuing to rise rapidly. Goldman Sachs and the Council on Foreign Relations tracked the evolution over just this administration. Their findings are stunning: In June, US businesses absorbed about 64 percent of the tariff costs, American consumers about 22 percent, and foreign exporters about 14 percent in the form of reduced profits. Just four months later, American businesses absorbed just 27 percent, while American consumers absorbed 55 percent and exporters absorbed 18 percent. Projections for 2026 continue the trend with consumers absorbing 67 percent, exporters 25 percent, and importers just 8 percent.
The logic behind this is simple and has been echoed by President Trump and Scott Bessent themselves. In the initial months following Liberation Day, American importers could not quickly shift to alternative suppliers, giving them little leverage to demand price cuts from existing foreign vendors. Many American importers also believed (or hoped?) that the tariffs were simply a negotiating tool that would be bargained away. Having built up inventories before April, they were able to avoid raising consumer prices, with the belief that the “temporary pains would be worth the long term gains.”
That’s no longer the case. As the BLS notes in its latest import price index report, the price of imports has barely changed. This matters because US importers, not foreign sellers, are legally required to write the tariff check. American buyers pay the foreign company’s price, then pay the tariff on top of it. If foreigners were truly absorbing the tariffs, they’d have to lower their prices to compensate, and we would see a decrease in the import price index. We haven’t. The index is flat, which is evidence that the burden of the tariff is, as economists warned, being paid disproportionately by Americans in one form or another. As the Council on Foreign Relations analysis points out, by October, importers have “had time to seek alternative suppliers, giving them a bit more negotiating leverage.” More importantly, the “trade deals” that the administration has inked have made it clear that substantially higher tariffs are here to stay. All of this gives importers and retailers good reason to continue passing more of the costs along to consumers.
We are already seeing evidence of this happening. The Federal Reserve Bank of Boston’s survey of small and medium-sized businesses, for example, confirms this dynamic. Firms expecting tariffs to persist for a year or longer plan to pass through three times more of their cost increases to consumers than firms expecting short-lived tariffs. As of August, over 45 percent of affected businesses expected their costs to be impacted for longer than a year.
But how does all of this compare to the pass-through rate felt during the 2018–2019 tariffs? The Harvard Pricing Lab—the same data that Lynn cites—actually undermines his entire argument. After just six months, the 2025 tariff pass-through rate is indeed around 20 percent. But if we compare this to the 2018 tariffs, the difference is night and day. After Trump’s first-term tariffs, the pass-through rate stayed under 5 percent after a full year. This isn’t evidence that these tariffs are working. It’s evidence that these tariffs are hitting consumers harder and faster than the previous round.
What Businesses Are Saying
All of these numbers and statistics can certainly feel abstract. The lived, human reality is decidedly not.
The Federal Reserve’s Beige Book, which collects both quantitative and qualitative reports from businesses across the country, tells a consistent story. In Cleveland, “some manufacturers and auto dealers reported passing along 100 percent of tariff increases to customers, while others said that they are slow[ly] raising prices in response to tariffs.” In Chicago, “manufacturers attributed higher raw materials prices to tariffs and several said that they had passed on those increases to customers.” In Richmond, a glass manufacturer reported that its supplier was driven out of business by the tariffs, forcing consolidation among remaining suppliers, eliminating regional jobs, and driving prices higher.
Survey data from Cleveland shows that 87 percent of manufacturing firms report increased costs due to tariffs and the uncertainty surrounding them. For firms that receive at least half of their materials from imports, 75 percent reported that they would pass at least a majority of the tariffs on to consumers. None reported that they would absorb the full cost themselves.
Philip Luck, former deputy chief economist at the State Department, put it succinctly: the president promised “millions and millions of jobs” from the tariffs, but those promises are completely out of step with reality.
The Manufacturing Renaissance That Isn’t
Lynn alleges that tariffs are working as intended. If that’s the case, we should see American manufacturing employment surging. After all, the entire point of the tariffs is to reshore American manufacturing jobs—something President Trump and his administration have been remarkably clear about.
So how’s that going?
According to the Bureau of Labor Statistics, the manufacturing sector has lost jobs for the past five months. The jobs report for September found 6,000 fewer manufacturing jobs, which brings the total job losses in manufacturing to 59,000 since April’s “Liberation Day.” The Institute for Supply Management finds similar figures, with eight consecutive months of contracting manufacturing employment.
These aren’t statistical blips, and they’re not the result of “fake data.” They form a pattern. Manufacturing job openings have plunged by over 100,000 since Trump took office. Factory hiring in May fell to its weakest rate since 2016, including the pace of hiring during the COVID pandemic.
But these aren’t just numbers on a spreadsheet. They reflect the real, human toll felt by communities across the country. In Detroit, for example, a city that President Trump marked his 100th day in office by promising that “a lot of auto jobs coming” (sic), has been besieged by struggles in both the automotive and steel industries. Stellantis laid off 900 workers at five Midwest plants, specifically citing tariff-created conditions. Steel manufacturer, Cleveland-Cliffs, cut 1,200 jobs in Michigan and Minnesota.
This is not a surprise to anyone who remembers even recent history. When President Bush imposed steel tariffs in 2002, the effect was clear: steel manufacturing employment suffered, so much so that Bush had to rescind the tariffs ahead of schedule, yet the effect persisted years after their removal. Likewise, Trump’s 2018 steel tariffs did save about 1,000 steel jobs in the short run but wiped out roughly 75,000 manufacturing jobs due to higher input costs.
The Real Story
Lynn wants us to believe that economists were wrong, that tariffs are a wealth transfer from Beijing and Berlin to Washington, and that Americans are getting a free ride while foreigners foot the bill. Unfortunately, the evidence says otherwise.
Still, Lynn and I agree on one thing: “there’s nothing inherently wrong with a government robustly promoting the interest of its own citizens.” The problem is that tariffs are not promoting America’s interest. They are taxing American consumers, destroying American manufacturing jobs, and actively pushing trading partners away from the US such that our industries will have fewer, not more, customers on the world stage.
The American people are, on a per-capita basis, the most industrious and productive people on the planet. We don’t need “protection” from the rest of the world. We need the freedom to trade with willing partners, the ability to buy inputs at competitive prices, and partnerships with foreign buyers so we can export our products to the rest of the world.
The tariff vindication that Lynn keeps promising remains as elusive as ever. And working Americans are paying the price. It’s time to end this failed experiment once and for all.