Who Bears the Burden of Tariffs?

Co-blogger Jon Murphy, in “Why Must Americans Pay Tariffs?” May 29, 2025, points out that U.S. tariffs are largely paid by Americans. He cites the relevant literature.

He then goes on to note that trade occurs between individuals and firms, not countries. This is true and important, but it’s not relevant to the issue of who bears the burden of tariffs.

A tariff is a tax. There’s a straightforward way to assess who bears the burden of a tax: look at the elasticities of demand and supply.

If our elasticity of demand is low and the exporters’ elasticity of supply is high, then we Americans bear most of the burden of the tax. But if our elasticity of demand is high and the exporters’ elasticity of supply is low, then the exporters bear most of the burden of the tax.

Here’s what I wrote on that issue in “Tariffs Will Hurt Canadians and Americans Alike,” Defining Ideas, December 19, 2024:

Many people who have, like me, been critical of tariffs, have claimed that US consumers bear the whole cost of the tariff. Writing in August 2019, for example, Rachel Layne of CBS News stated, “The fact is, companies here pay tariffs to US Customs and Border Protection when Chinese goods reach America’s shores.” It’s true that Americans write the checks. But one of the first things about taxes that we economists teach undergrads is that knowing who writes the check tells you exactly nothing about who bears the burden of a tax. What determines the split of the burden between producer (exporter) and consumer (importer) is their relative elasticities of supply and demand.

Consider Canadian oil. On the one hand, many Americans in the Midwestern states depend upon oil from Canada. In response to the tariff, though, they will probably have oil shipped by train from other parts of the United States. That’s expensive, but it is a way to adjust. But Canadian oil producers have few alternative customers to sell to besides Americans. This lack of good options makes their elasticity of supply low. They’ll likely absorb most of the cost of the tariff by not raising prices very much. The result? Canadian oil producers would bear more than half of the burden of the tariff on oil. The outcome will depend on the goods in question. The fact that so many Canadians are sweating the tariffs that Trump is threatening suggests that they think they will bear a substantial part of the burden.

As a generalization, it’s probably true that we U.S. consumers bear most of the burden of the tariffs that the U.S. government imposes. But there’s no necessity for that. It’s an empirical issue.

Jon rests a lot of his argument on methodological individualism. But noting the relevance of elasticities of demand and supply does not contradict methodological individualism.