The trade war dominated global economic headlines in 2025, and current trends indicate it is far from over. This analysis explores key evidence showing that the cost of tariffs is largely being absorbed by US companies, while also evaluating the resilience of global trade flows.
Tariff Costs Primarily Borne by US Businesses
Since Donald Trump initiated the trade war in 2025, economists and policymakers have debated who ultimately pays for tariffs. The US administration argues that foreign exporters reduce prices to maintain access to the American market, effectively absorbing most of the cost. However, economic theory and historical patterns suggest that consumers typically bear the burden through rising prices and inflation over time.
What does the data reveal? With limited exceptions, foreign exporters have largely maintained their profit margins. Meanwhile, consumer inflation has increased, but at a slower pace than initially forecast. These combined trends suggest that, for now, US businesses are shouldering the majority of tariff-related costs.
Additional indicators reinforce this conclusion. The US import price index rose by just 0.7% in 2025, closely aligning with its long-term annual average increase of 0.5% since 2010. While certain sectors — such as spirits, timber, cosmetics, steel, and textiles — experienced notable price declines, these remain isolated cases. Overall, there is no widespread evidence of foreign suppliers cutting prices significantly to retain US market share.
Moreover, the US recorded an average annual inflation rate of 2.8% in 2025. Without the trade war, inflation would likely have been closer to 2%. Still, this figure remains well below earlier projections of 3.5% to 4% under average tariff levels of around 15%. These numbers indicate that tariff costs have not yet been significantly passed on to consumers.
At the same time, there has been a sharp increase in input costs across tariff-exposed industries. By the end of 2025, input cost inflation reached 20% in metalworking, 9% in household appliances, 8% in automotive manufacturing, 6% in machine tools and textiles, and 5% in electronics. In many of these sectors, profit margins are either stagnating or declining.
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Source: Coface analysis based on data from the Bureau of Labor Statistics, the US Census Bureau, and Macrobond.
While these findings may appear surprising given the overall strength of the US economy, GDP growth does not necessarily reflect the performance of all sectors.
Rising business insolvencies provide further insight. The escalation of the trade war has coincided with a significant increase in bankruptcy filings, now approximately 15% higher than the 2019 average. This trend has persisted for three consecutive quarters, marking the longest streak since the COVID-19 pandemic. Although many companies continue to adapt by leveraging cash reserves or improving productivity, a growing number are becoming financially vulnerable.
Consumer behavior also reflects mounting pressure. After the inflation surge following the pandemic, US households are increasingly resistant to further price increases. Concerns over the rising cost of living are fueling what many describe as an “affordability crisis,” which could have political implications, particularly for Republicans in the upcoming midterm elections in November.
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Global Trade Disruption Continues, but System Remains Intact
US tariff policies have introduced significant volatility into global trade. Initially, businesses accelerated imports, leading to a 25% year-over-year increase in US import volumes in Q1 2025 as firms rushed to get ahead of tariff implementation.
In April, the announcement of a 90-day tariff truce triggered another surge in import activity. However, this temporary spike was followed by a slowdown in the second half of the year as inventories normalized and demand softened. Despite these fluctuations, overall US import levels remained robust throughout 2025.
Total imports grew by 4.2% over the year, representing a modest slowdown compared to the 5.2% growth recorded in 2024. This continued growth contributed to the persistence of the US trade deficit — despite reducing the deficit being a key objective of US tariff policy.
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This instability has significantly impacted global maritime transport costs. Freight rates remained stable in the first quarter, as shipping companies anticipated a surge in demand ahead of tariff implementation. However, the second wave of demand caught carriers off guard, particularly after capacity had already been reduced on key trans-Pacific routes in anticipation of a prolonged slowdown.
As a result, container shipping rates surged dramatically, rising by 70% within just four weeks starting in early May. The Shanghai–Los Angeles route experienced an even sharper increase, with freight costs skyrocketing by nearly 120%, highlighting the intense pressure on global logistics networks.
Tariffs have also accelerated the ongoing restructuring of global trade patterns. This shift has brought renewed attention to so-called “connector countries,” a concept that first emerged during the US-China trade war in 2018.
These intermediary nations act as strategic trade bridges between the United States and China, the primary target of US tariff measures. Unlike earlier periods, the selection of these connector countries is now increasingly driven by relative tariff advantages. Countries benefiting from lower tariffs than China are seeing their roles expand rapidly within global supply chains.
Vietnam stands out as a leading example of this trend. Between 2017 and 2024, Vietnam’s share of US imports increased steadily by an average of 0.3 percentage points annually, rising from 2% to 4.2%. In 2025 alone, this share jumped by 1.5 percentage points, representing a fivefold acceleration. US imports from Vietnam surged by 42% in value, accounting for approximately 44% of the decline in imports from China. Simultaneously, Chinese exports to Vietnam rose at a similar pace, reinforcing Vietnam’s position as a key intermediary hub in global trade.
A similar pattern is observed in Thailand, where increased US imports coincided with rising Chinese exports to the country, though at a smaller scale. Mexico, often cited as a major connector country, presents a more nuanced case. While its exports to the United States increased in 2025, this growth was four times larger than the rise in Chinese exports to Mexico, suggesting that its role as a simple intermediary is more limited than commonly assumed.
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Source: US Census Bureau, Coface
The Uncertain Future of US Tariff Policy
The disruptions caused by US tariffs so far may represent only the early stages of a broader transformation in global trade. On February 20, 2026, a US Supreme Court ruling invalidated tariffs imposed under the International Emergency Economic Powers Act (IEEPA), creating significant uncertainty around the future of US trade policy.
This decision affects most of the so-called “reciprocal tariffs” announced on April 2, 2025 (Liberation Day), as well as the “fentanyl-related” tariffs targeting imports from Mexico, Canada, and China.
However, tariffs implemented under Section 232 — covering industries such as metals, automotive, and timber on national security grounds — remain in force. Similarly, Section 301 tariffs, primarily targeting China and largely introduced during Donald Trump’s first presidency, continue to apply. Of the total $272 billion in tariffs collected since March 2025, approximately $166 billion, collected under IEEPA, could potentially be refunded to US companies.
To compensate for the invalidated tariffs, the White House quickly introduced a temporary measure under Section 122 of the Trade Act of 1974. This allows for a baseline tariff of 10%, which can be increased to 15%, valid until July 24 and renewable with congressional approval. Additionally, efforts are underway to replicate the invalidated tariff framework using alternative legal mechanisms, potentially including expanded use of Sections 232 and 301.
Against this backdrop, three key insights emerge.
- Firstly, the US administration remains committed to maintaining an aggressive tariff strategy. Any rapid rollback of trade restrictions, such as easing measures to offset potential energy price shocks linked to geopolitical tensions like the Strait of Hormuz crisis, would contradict its stated policy direction. As a result, the “TACO” (Trump Always Chickens Out) scenario appears highly unlikely.
- Secondly, reliance on legally fragile justifications is increasing uncertainty in global trade. If tariffs in place for nearly a year can be overturned, businesses face growing difficulty in planning and investment decisions. Newly introduced tariffs may also face legal challenges, further compounding unpredictability in international markets.
- Thirdly, there are limits to how long companies can absorb tariff-related costs without passing them on to consumers. Margin compression and productivity gains cannot offset rising costs indefinitely. Following the rapid escalation of tariffs in 2025, the trade war may now be entering a slower, more prolonged phase, potentially with stronger inflationary effects over time.
1 Measured using the Bureau of Labor Statistics (BLS) business input price index, specifically “inputs to industry price indexes,” these trends highlight the growing cost pressures across industries.
