NextFin News - A comprehensive economic analysis released by the Federal Reserve Bank of New York on February 12, 2026, has delivered a stark assessment of the ongoing trade war, concluding that U.S. businesses and consumers are bearing approximately 90% of the total cost of tariffs. The study, authored by economists Mary Amiti and David E. Weinstein, utilizes data from the U.S. Census Bureau to track price movements and tariff incidence throughout 2025. According to the report, the average effective tariff rate on imported goods skyrocketed from 2.6% to 13% over the past year, creating a substantial fiscal drag on the domestic economy.
The findings indicate that the burden was particularly heavy during the first three quarters of 2025, with domestic entities paying 94% of the costs between January and August. While this figure dipped slightly to 86% in November, the overarching trend suggests that foreign exporters have lowered their prices by only a negligible margin, forcing American importers to either sacrifice profit margins or pass the expenses directly to the public. This data arrives at a critical juncture for the administration, as U.S. President Trump continues to maintain that foreign nations are "paying" for the tariffs—a claim the New York Fed’s empirical evidence directly contradicts.
The political fallout from these economic findings manifested rapidly in Washington. On February 14, 2026, the U.S. House of Representatives delivered a symbolic blow to the administration's trade policy by voting 219-211 to cancel tariffs against Canada. The motion succeeded after six Republican lawmakers, including Nebraska Representative Don Bacon, broke ranks to join Democrats. Bacon cited the immense pressure from local industries and the rising cost of living as primary drivers for his defection. Although U.S. President Trump has vowed to veto the measure, the vote signals a fracturing of partisan unity as the 2026 midterm elections approach and consumer confidence hits decade-lows.
From an analytical perspective, the New York Fed’s study exposes the structural failure of the "tariff-as-leverage" model in a highly integrated global supply chain. The assumption that foreign producers would slash prices to maintain market share has been largely debunked by the reality of "sticky" pricing and the lack of immediate domestic alternatives for specialized components. According to the Congressional Budget Office (CBO), the long-term distribution of these costs is expected to settle with foreign companies bearing only 5% of the burden, while U.S. companies absorb 30% and consumers shoulder a staggering 70% through higher retail prices.
The microeconomic impact is already visible in corporate earnings and household balance sheets. General Motors and Procter & Gamble have recently warned of significant profit headwinds or impending price hikes linked to raw material duties. According to the nonpartisan Tax Foundation, the average U.S. household faced a $1,000 increase in costs due to tariffs in 2025, effectively neutralizing the benefits of concurrent tax cuts. This "hidden tax" has contributed to a sharp decline in consumer sentiment, as reported by the Conference Board, which noted that mentions of trade-related price anxiety reached record levels in January 2026 surveys.
Looking forward, the trajectory of U.S. trade policy faces two major hurdles: the Supreme Court and the ballot box. The high court is currently reviewing the legality of the National Economic Emergency Act, which U.S. President Trump has used to bypass traditional congressional oversight on trade. A ruling, expected by summer 2026, could either codify or curtail the executive branch's power to impose unilateral duties. Simultaneously, the growing rebellion among GOP lawmakers suggests that if inflation does not abate, the administration may be forced to pivot toward targeted exemptions—particularly for allies like Canada—to prevent a broader economic slowdown ahead of the midterms.
Ultimately, the New York Fed’s report serves as a data-driven refutation of protectionist optimism. While the administration argues that tariffs accelerate reshoring and energy independence, the immediate reality is a transfer of wealth from American pockets to the Treasury, with domestic industry caught in the crossfire. As the effective tax rate on imports remains at historic highs, the risk of a "one-legged stool" economy—supported only by high-end tech investment and deficit spending—becomes increasingly pronounced, threatening the sustainability of the current growth cycle.
Explore more exclusive insights at nextfin.ai.
