Who Really Pays for Tariffs? Historical Data Reveals American Companies Footed the Bill
Washington, Tuesday, 26 May 2026.
A May 2026 economic study reveals a striking fact about the Smoot-Hawley Act: American importers absorbed almost the entire cost of the tariffs, not foreign exporters.
The Mechanics of Import Collapse
A working paper released on May 26, 2026, by economists Kris James Mitchener and Mathieu Pedemonte utilizes newly digitized monthly data on import quantities, prices, and product-level tariff rates [1]. The researchers found that in the first year following the passage of the Smoot-Hawley Tariff Act—a controversial 1930 piece of protectionist legislation [GPT]—imports subjected to rate increases fell swiftly and dramatically [1]. Specifically, for every one-percentage-point increase in the tariff rate, imports declined by an average of 4% [1].
Fixed Exchange Rates and Trade Elasticity
To understand why the import volume reacted so aggressively to the price changes, the researchers applied an open-economy model [1]. Through this framework, they identified a remarkably high short-run trade elasticity of greater than 4 [1]. The authors attribute this intense sensitivity to the fixed exchange rate system that the United States maintained with the majority of its trading partners during the initial 15 months following the act’s enactment [1]. Under a fixed exchange rate regime, currency valuations cannot naturally adjust to act as a shock absorber against tariff-induced price hikes, forcing the direct cost onto buyers [GPT].
Calculating the Economic Welfare Deficit
Beyond the immediate drop in import volumes, the research evaluated the broader macroeconomic damage by constructing both partial equilibrium and general equilibrium welfare estimates [1]. Both methodologies point to a welfare loss equivalent to approximately 0.2% of the United States Gross Domestic Product (GDP) [1]. While a fraction of a percent might initially appear modest, the authors note that this specific figure reflects a high measured elasticity of substitution combined with a historically low US import-to-GDP ratio during that era [1].