Economic Advisor Critiques Tariff Study
In a recent discussion, White House economic adviser Kevin Hassett voiced strong opinions about a study from the New York Federal Reserve. This study suggested that the majority of the burden from tariffs implemented during the Trump administration fell on American businesses and consumers.
Hassett’s comments were pointed: “This paper is, quite frankly, embarrassing. I think it’s the worst paper I’ve ever come across in the Federal Reserve System,” he stated in an interview with CNBC. He further suggested that the authors of the study deserved to face repercussions for their findings, which he labeled as overly partisan and misleading.
The New York Fed’s research reported that 86% of the costs associated with tariffs were shouldered by U.S. businesses and consumers, while only 14% of that burden was attributed to foreign exports. Interestingly, this share had decreased from 94% early in the year to 92% in the following months.
Opposition to the Federal Reserve’s current approach seems to be rising, as some officials advocate for renewed interest rate hikes in response to dipping inflation.
The Fed’s analysis also indicated an increase in average tariff rates, going from 2.6% at the start of 2025 to a projected 13% by year-end. Moreover, tariffs peaked around April and May, following the announcement of the “Emancipation Day” tariffs by President Trump.
The New York Fed noted, “Our results clearly show that the main burden of tariffs continues to fall on U.S. businesses and consumers,” further backing this up with other recent studies demonstrating that U.S. importers largely bear the associated costs.
Support for the Fed’s analysis is echoed in a report by the nonpartisan Congressional Budget Office (CBO), which mentioned that only about 5% of the tariff costs are shouldered by foreign exporters, leaving 95% to U.S. companies and consumers. As a consequence of these tariffs, American firms may find themselves giving up about 70% of their profits, leading to increased consumer prices due to domestic producers raising their prices in light of diminished foreign competition.
The CBO projected that these new tariffs would elevate the personal consumption expenditures index by approximately 0.8 percentage points by the close of 2026. As of November, the index was already at 2.8%, notably above the Federal Reserve’s target of 2%.
Despite the criticisms, Hassett remained steadfast in defending the Trump administration’s tariff policies during the same CNBC interview. He argued that prices have actually decreased over time, pointing out that, “Import prices significantly dropped in the first half of this year, although they’ve stabilized since then, and real wages increased by around $1,400 last year. This suggests that consumers are actually benefiting from the tariffs.”
Yet, he expressed confusion over the New York Fed’s findings. “If their analysis is accurate, then consumers wouldn’t be experiencing any benefits from the tariffs,” said Hassett. “I’m just really puzzled by this.”
