Co-blogger Jon Murphy, in his piece titled “Why Must Americans Pay Tariffs?” published on May 29, 2025, highlights a crucial point: U.S. tariffs are predominantly shouldered by American consumers. He references the relevant literature to substantiate his claims.
Murphy asserts that trade transactions occur between individuals and businesses rather than nations themselves. While this observation is valid and significant, it does not directly address who ultimately pays the price of these tariffs.
At its core, a tariff functions as a tax. To determine who bears the financial weight of such a tax, one must examine the elasticities of demand and supply.
If the elasticity of demand among American consumers is low while the elasticity of supply from exporters is high, then the burden of the tax falls largely on U.S. shoulders. Conversely, if demand is elastic and supply is inelastic, the exporters will absorb most of the cost.
In my previous article, “Tariffs Will Hurt Canadians and Americans Alike,” published in Defining Ideas on December 19, 2024, I elaborated on this topic:
Critics of tariffs, myself included, often contend that U.S. consumers bear the brunt of these costs. As Rachel Layne noted in August 2019 for CBS News, “The fact is, companies here pay tariffs to U.S. Customs and Border Protection when Chinese goods reach America’s shores.” While it’s true that Americans are the ones writing the checks, one foundational lesson in economics is that simply knowing who pays does not reveal who ultimately bears the tax burden. The allocation of this burden depends heavily on the relative elasticities of demand and supply.
Take Canadian oil as a case study. Many Midwestern Americans rely on this resource, and in response to tariffs, they may resort to shipping oil from other U.S. regions, which is a more costly alternative. Conversely, Canadian oil producers have limited alternative markets, resulting in a low elasticity of supply. Thus, they are likely to absorb a significant portion of tariff costs without substantially increasing prices. This scenario illustrates that Canadian oil producers may end up shouldering over half the tariff burden. It’s noteworthy that the anxiety surrounding these tariffs from our northern neighbors suggests they anticipate bearing a considerable share of the cost.
In general, it appears that U.S. consumers tend to absorb the majority of the burdens imposed by tariffs. However, this is not an immutable fact; it remains an empirical question that warrants deeper investigation.
Jon’s argument leans heavily on the principle of methodological individualism. Yet, acknowledging the significance of elasticities does not conflict with this perspective.
