Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?

Abel, Jaison R.; Deitz, Richard; Heise, Sebastian; Hyman, Benjamin; Montalbano, Nick

Discussion Paper

Are Businesses Absorbing the Tariffs or Passing Them On to Their Customers?

Abstract: U.S. import tariffs increased to historically high rates in recent months, raising the costs of many imported inputs businesses use. Businesses subject to these higher costs have been faced with difficult and complex decisions about whether to absorb the tariffs through lower profits, raise their prices to recover the higher costs, or some combination of both. These decisions are influenced by the degree of competition in the marketplace, potential customer reactions, and the ability to maintain profit margins, among other factors. Our May survey of businesses in the New York–Northern New Jersey region asked firms about the tariffs they faced, recent changes in the cost of imported goods, and whether they were passing on tariff-induced cost increases to their customers. Results indicate most businesses passed on at least some of the higher tariffs to their customers, with nearly a third of manufacturers and about 45 percent of service firms fully passing along all tariff-induced cost increases by raising their prices.

JEL Classification: F0; E3;