President Trump is adamant that his tariff wars will reduce the amount of imports from overseas businesses into the US, as these businesses will pay the tariffs. But will they?
Importing is a complex business! Who pays the duties or tariffs depends upon who is the importer under global Incoterms and the origin of the goods.
For the majority of Incoterms, the importer is the buyer in the US. They are the ones that pay the duties and must find a way to mitigate the cost to their customers. This will mainly be US businesses facing this dilemma unless they have negotiated Delivered Duty Paid (“DDP”) Incoterms.
So, what can a US business do to avoid being the person holding the tariff baby? There are basically three choices:
- Pass on the duty cost to the customer. A tough choice this as ultimately it will be US consumers who will pay the price of the tariff war. This could mean a loss of market for businesses who import goods
- Negotiate with suppliers to absorb some or all of the tariff charge. Not ideal as margins for the overseas suppliers may already be slim and they may have bigger markets elsewhere with more favourable tariffs. This could lead to a loss of goods to sell and a loss of income
- Manufacture in the USA. At the heart of the tariff war is the US Government’s desire to stimulate its economy and to have more manufacturing in the USA. However, it isn’t easy to set up and manufacture quickly. There are significant upfront costs such as buildings and equipment, permits, utility connections plus ongoing costs such as staff, raw materials (which may not be available in the USA and would still be subject to tariffs). Starting salaries in the US for blue collar workers is around €31,000, with an average of around $41,000 ($19 per hour). This is slightly cheaper than the UK (around $20 per hour) but significantly more expensive than China at around $4.5 per hour.
What does this mean for the US consumer? Conservative estimates are that the price of goods will rise by 1.8% this year (Yale Budget Lab). This is muted because there was a significant amount of “front loading” – bringing in goods before the tariff increases. Some businesses have made the choice to “eat the tariffs” in the hope that eventually tariffs will be reduced or removed.
General Motors has reported that the tariff war has cost them $1.1bn in the second quarter of 2025. Data released on 1 August 2025 showed a significant slow down in job creation and early signs of investment paralysis due to economic uncertainty following the tariff wars.
All in all, it seems that the tariffs imposed may be mis-firing in the US.
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