"One year after 'reciprocal tariffs', did Americans ultimately bear it all?"

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There has long been a myth in the market: high tariffs will force foreign exporters to cut prices drastically, thereby protecting the U.S. domestic economy. However, CSC (CITIC Securities) points out: in this game of tariffs, it is U.S. importers—and ultimately U.S. consumers—who pay the bill.

On February 25th, CSC released a research report stating that in 2025, the inward “pass-through rate” of tariffs is as high as 92%. This means foreign exporters have hardly lowered prices, and for every $100 increase in tariff costs, U.S. importers must absorb $92. More critically, as inventory runs out, this cost pressure is spreading to the Consumer Price Index (PCE) at an alarming speed. By December 2025, tariffs will have cumulatively pushed PCE up by about 0.72 percentage points year-on-year, raising actual PCE to 2.90% (if without tariffs, it would be only 2.18%).

Macroeconomic impact on investors:

Inflation persistence is seriously underestimated: The extra 0.72 percentage points of inflation caused by tariffs means the Fed faces a more stubborn inflation base than expected, and the market may be overly optimistic in pricing the rate cut path.Corporate profit margins face pressure: In high pass-through industries (such as toys, furniture, apparel), U.S. importers have borne huge upfront costs. If they cannot pass more than 65% of this additional inflation onto end consumers, profit expectations for relevant retailers and importers will be sharply downgraded.Looking for “domestic substitution capacity” safe havens: Only in industries with massive U.S. domestic production capacity, such as crop production and basic chemicals, are foreign exporters forced to lower prices and bear tariffs. This means that amid trade friction, highly substitutable U.S. domestic defensive sectors have greater certainty.

First Pass-through Layer: Exporters Refuse to Cut Prices, U.S. Importers Swallow 92% of Tariff Costs

The first part of the report hits the core question: who bears the tariff cost? CSC, based on HS 10-digit import data, built a massive panel dataset with 5.35 million observations (covering 8 countries, 20,868 products, spanning 108 months until December 2025).

The baseline conclusion from the regression model is: β≈−0.08, pass-through rate about 92%. For each 1 percentage point increase in tariffs, exporters lower prices by only 0.08 percentage points on average. Exporters absorb only 8% of the shock, with the remaining 92% falling entirely on American buyers.

From a country perspective, the data is even more striking:

China: Pass-through rate as high as 94%. For every $100 in tariffs, U.S. importers absorb $94, Chinese exporters only $6.Japan and ASEAN: Pass-through rates actually exceed 100% (Japan 1.12, ASEAN 1.19). This means exporters from these regions not only did not cut prices, but raised prices thanks to tariff barriers, taking the opportunity to expand profits.

Great Industry Differentiation: Who Is Profiting from Disaster, Who Is Cutting Losses to Save Revenue?

The report further analyzed 44 NAICS industry codes (covering 83% of import volume) and found a de-trended pass-through rate average of 83% and a median as high as 97%.

High Pass-through Industries (U.S. firms absorb everything): Metal processing machinery (134%), toys (105%), furniture (105%), apparel (104%), agricultural machinery (111%). The report notes, 80% of U.S. toys come from China, 70% of car seats and interior manufacturing from Mexico, and the pass-through rates in these highly concentrated industries are close to or above 100%, since importers simply can’t find substitutes.Low Pass-through Industries (exporters cut prices): Crop production, communications equipment manufacturing, basic chemical manufacturing, etc. Why are exporters in these industries willing to absorb tariffs? The report points it out in one phrase: domestic capacity. Crops and basic chemicals are sectors where U.S. exports exceed imports, and domestic production has huge substitution capacity. Foreign exporters face high demand elasticity; if they don’t cut prices, the market will abandon them.

Second Pass-through Layer: Post-Lag Explosion, Inflation Bill Passed to U.S. Consumers

Where did the costs absorbed by importers ultimately go? The report tracked the penetration of tariffs into PCE (Personal Consumption Expenditures) inflation through a five-step pass-through tracking model.

The data reveals a dangerous “lag trap”:

The mild boiling frog stage: In the first 2–3 months after tariffs take effect, the impact is almost unseen (pass-through coefficient β only 0.02-0.08, not significant). During this period, U.S. companies are consuming old inventory.Rapid backlash after inventory depletion: From July onwards, as low-cost inventory is exhausted, the pass-through coefficient rapidly rises, becoming statistically significant for the first time at the 1% level in July, surging to 0.55 in September, and finally reaching 0.65 in December.The final form of the inflation bill: β=0.65 means, theoretically, of the 1% price increase pushed by tariffs, 0.65% has truly become consumers’ “excess inflation.”

The final macro ledger shows: by December 2025, tariffs will have cumulatively raised PCE year-on-year by about 0.72 percentage points. The actual PCE in December will reach 2.90%; if the tariff-driven effect is forcibly excluded, the real PCE would only be 2.18% (very close to the Fed’s 2% target). The boost to inflation from tariffs rises from just +0.06pp in April, worsening month by month to +0.72pp at year-end.

Risk Disclosure and DisclaimerThe market contains risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their specific circumstances. Investing based on this article is at your own risk. ```