Why Trump’s Tariffs Haven’t Shocked Markets: What Investors and Businesses Need to Know
Last year, President Donald Trump increased U.S. import tariffs to levels unseen in a century. These higher tariffs led to increased prices and difficulties for businesses relying on imported goods, with some forced to close. However, the anticipated severe impact has been less pronounced than initially predicted following Trump’s announcement of double-digit tariffs in early April.
A recent working paper by economists from Harvard University and the University of Chicago sheds light on this discrepancy. It reveals that the effective tariff rate paid by importers has been substantially lower than the official figures announced by the administration. This difference is due to exemptions for certain countries and industries, reduced rates applied to some goods upon arrival in the U.S., and tariff evasion by some companies.
By examining government tariff revenue alongside import values, the economists estimated that the actual U.S. tariff rate was 14.1% as of late September—roughly half the announced average rate. The nominal trade-weighted tariff rate stood at 27.4% in September, down from a peak of 32.8% in April.
Harvard economist Gita Gopinath, former first deputy managing director of the International Monetary Fund, highlighted that "the actual tariffs are much lower than what were announced, and that is one of the reasons why the effects have not been as big as feared."
Several factors contributed to this outcome. Notably, products already en route by ship when tariffs were announced were exempted, slowing the rate at which tariffs affected businesses. Additionally, exemptions for semiconductors and related products—a move widely regarded as favoring technology firms—meant that these goods faced far lower effective tariffs (around 9%) compared to other commodities. For instance, imports from semiconductor-heavy regions like Taiwan encountered an actual rate of 8%, far below the official 28%.
Canada and Mexico also benefited from significant exemptions. Under the U.S.-Mexico-Canada Agreement, many goods predominantly made in North America qualified for zero tariffs. Compliance claims from Canadian and Mexican imports rose to roughly 90% in 2025, a notable increase from under 50% the previous year, partly because low previous tariffs had discouraged diligent reporting.
Tariff evasion further lowered the actual tariff burden. Companies employed legal and illegal tactics to modify customs declarations regarding product content, value, or origin, thereby reducing payable tariffs.
Facing growing concerns over affordability, the Trump administration has granted more exemptions and postponed some tariff hikes. Recently, Trump delayed a planned tariff increase on vanities, kitchen cabinets, and upholstered furniture for an additional year. The Commerce Department also paused potential tariffs on certain Italian pasta imports, acknowledging that some producers addressed concerns about unfair trade practices, with a final decision expected in March.
Who ultimately bears the cost?
Despite tariff reductions and exemptions, the tariffs have still burdened U.S. businesses and consumers. While importers formally pay tariffs to the government, economists Gopinath and Brent Neiman of the University of Chicago found that U.S. companies—rather than foreign exporters—shoulder most of the cost. In 2025, about 94% of tariff costs were passed through to U.S. firms, compared to roughly 80% during earlier tariffs imposed on China in 2018-2019.
Though comprehensive data covering a full tariff period remain limited, these policies have significantly altered global trade patterns. For example, China’s share of U.S. imports plunged to 8% in late 2025 from 22% at the end of 2017.
U.S. consumers and manufacturers face higher prices, particularly for imported goods, which, according to a November working paper, saw price increases roughly twice the magnitude of domestic goods. Certain U.S. manufacturing sectors dependent on foreign inputs—such as heavy-duty trucks, construction equipment, automobiles, agricultural machinery, and oil and gas equipment—have been especially affected.
Gopinath summarized the finding: "The logic was if foreign firms wished to sell to the mightiest consumer market in the world, they would have to pay a price. In reality, the price has been borne by U.S. firms, and not by foreign firms."
This article originally appeared in The New York Times.
Special Analysis by Omanet | Navigate Oman’s Market
The U.S. tariffs, while officially high, have been softened by exemptions and evasion, resulting in a lower actual tariff rate than feared. For Omani businesses, this means potential shifts in global supply chains as U.S. importers bear increased costs, which could disrupt pricing and sourcing strategies. Smart investors and entrepreneurs should closely monitor trade policy developments and explore opportunities in sectors like semiconductors and automotive parts, where tariff impacts are evolving, to leverage competitive advantages amidst global trade realignments.
