NY Fed Research Confirms U.S. Households Bear 90% of Tariff Costs, Challenging Administration Claims

This analysis is based on the New York Times report published on February 12, 2026, which covered research from the Federal Reserve Bank of New York’s Liberty Street Economics platform confirming that U.S. companies and consumers are bearing the overwhelming majority of tariff costs [1]. The study, titled “Who Is Paying for the 2025 U.S. Tariffs?”, examined the first 11 months of tariff implementation during 2025 and applied the New York Fed’s standard tariff incidence methodology to analyze price pass-through data [2]. The findings reveal a striking disconnect between political rhetoric and economic reality, with the data showing that approximately 90% of tariff costs remain within the domestic economy rather than being absorbed by foreign exporting entities.

The empirical evidence presented in this research carries substantial policy implications, as it fundamentally challenges one of the central economic arguments advanced in support of the tariff regime. Administration officials have consistently stated that foreign exporters bear the cost of tariffs, suggesting that these trade barriers represent a transfer of wealth from foreign producers to the U.S. Treasury without burdening American households. The NY Fed’s analysis, however, demonstrates that the incidence of tariff costs falls predominantly on domestic entities, consistent with established economic theory regarding tariff pass-through dynamics.

Market data from February 12, 2026, reveals significant selling pressure across all major indices, with the declines extending to a third consecutive trading day [0]. The S&P 500 declined by 1.46%, while the broader three-day trend shows a cumulative decline of approximately 1.9%. The technology-heavy NASDAQ experienced even steeper losses, falling 1.99% on the day with a three-day decline of 2.6%. The Dow Jones Industrial Average dropped 1.21%, and notably, the Russell 2000 index of smaller-capitalization stocks declined by 2.68%, extending its three-day losses to 3.1% [0].

The outsized decline in the Russell 2000 is particularly noteworthy from an analytical perspective. Smaller domestically-focused companies often maintain greater exposure to input cost pressures from tariffs, as they may lack the global supply chain diversification and pricing power of larger multinational corporations. This sector rotation pattern suggests that market participants are already processing the implications of sustained cost pressure on domestic business models.

The distinction between who legally pays tariffs and who economically bears their burden represents a fundamental concept in international trade economics that appears to be validated by the NY Fed’s research. While tariffs are legally levied on imported goods at the point of entry, the actual economic incidence depends on the relative price elasticities of supply and demand in both domestic and foreign markets. When foreign exporters possess pricing power in global markets or when domestic demand for imported goods is relatively inelastic, a significant portion of the tariff burden can be passed forward to downstream consumers and businesses.

The NY Fed’s finding that approximately 90% of tariff costs are borne domestically indicates that the current tariff structure has created conditions where foreign exporters have successfully limited their exposure through various mechanisms, including currency adjustments, supply chain optimization, and strategic pricing decisions. This outcome is consistent with economic models predicting that large economies imposing tariffs on a broad range of goods will experience substantial domestic price transmission rather than border adjustment effects.

The estimated annual household cost of $1,000-$1,300 represents a meaningful constraint on consumer purchasing power, particularly for middle-income households where such amounts constitute a significant share of discretionary income [3]. This burden manifests through multiple channels, including direct price increases on tariff-affected goods, indirect cost pass-through from supply chain participants, and potential employment effects in industries facing competitive pressures from both tariffs and potential foreign retaliation.

The cumulative effect of these costs across the household sector has significant macro-economic implications. If consumer purchasing power is eroded by approximately $1,000-$1,300 annually, this translates into reduced spending in the broader economy, with downstream effects on retail sales, service sector activity, and potentially employment in consumer-facing industries. The timing and distribution of these effects will likely vary across income strata and geographic regions, with higher exposure in sectors and communities more directly engaged in tariff-affected trade flows.

The divergence between the NY Fed’s empirical findings and administration assertions regarding tariff cost distribution creates a notable policy communication challenge. Economic policy effectiveness often depends on public understanding and acceptance of the rationale underlying policy choices. If a substantial portion of the electorate perceives that they are personally bearing the costs of trade policies that were marketed as imposing burdens on foreign entities, this could affect political support for continued tariff implementation and future trade negotiations.

The research provides an objective empirical benchmark against which policy claims can be evaluated, contributing to more informed public discourse regarding trade policy trade-offs. This type of independent economic research from Federal Reserve institutions carries particular credibility given the non-partisan analytical mandate of these organizations.

The analysis reveals several risk factors warranting attention from economic observers and market participants:

: The estimated $1,000-$1,300 annual household burden may constrain discretionary spending in coming quarters, with particular impact on tariff-sensitive sectors including electronics, automotive, appliances, and building materials [3]. Historical patterns suggest that consumers may initially absorb cost increases but eventually adjust spending behavior when cumulative price effects become substantial.

: Evidence that approximately 90% of tariff costs fall on domestic entities suggests ongoing pressure on companies unable to fully pass through price increases due to competitive constraints [1][2]. Industries with limited pricing power and high import dependency face particular vulnerability to margin compression, potentially affecting capital investment and employment decisions.

: If persistent, this cost structure could complicate the Federal Reserve’s inflation targeting framework and affect expectations regarding the interest rate trajectory. The pass-through of tariff costs to consumer prices represents an supply-side inflationary pressure that may prove more durable than demand-side factors typically addressed through monetary policy.

: The market’s disproportionate impact on smaller-capitalization stocks, as reflected in the Russell 2000’s 2.68% decline, suggests emerging sector rotation dynamics [0]. Import-dependent sectors may face sustained headwinds, while domestically-sourced alternatives could benefit from relative value considerations, though such sector rotations carry their own timing and execution risks.

Several factors require ongoing observation to properly assess the evolving situation. These include confirmation of the NY Fed methodology’s applicability to the most recent tariff announcements, international retaliation potential and its second-order economic effects, corporate pricing power sustainability across affected industries, and the evolution of consumer sentiment in response to sustained price pressures. The extent to which businesses may engage in supply chain repositioning, including geographic diversification of sourcing and increased domestic production investment, will also significantly influence the long-term distribution of tariff costs.

The New York Federal Reserve’s research published on February 12, 2026, provides robust empirical evidence that U.S. economic policy regarding tariffs has resulted in domestic cost incidence substantially exceeding initial expectations or political claims. The finding that approximately 90% of tariff costs are borne by U.S. consumers and companies aligns with fundamental economic principles regarding tariff pass-through but contradicts assertions that foreign exporters bear the primary burden of these trade barriers.

The estimated household cost of $1,000-$1,300 annually represents a meaningful economic transfer with implications for consumer spending power, corporate profitability, and potentially monetary policy formulation. Market responses to this information, reflected in three consecutive days of broad-based equity market declines with particular weakness in smaller-capitalization stocks, suggest that investors are processing the implications of sustained cost pressure on domestic business models.

Independent verification and ongoing analysis of tariff incidence dynamics will remain important for understanding the full economic consequences of trade policy choices. The availability of rigorous empirical research from institutions like the Federal Reserve Bank of New York provides valuable context for informed policy evaluation and economic forecasting.