Trade War 2.0: Why 2025's $200 Billion Tariff Burden Mirrors the Failed 2018-2019 Strategy

FINAL WARNING: Wall Street Is Unhinged. Protect Your Wealth Now. (from RADI)

Who really pays tariffs?

Recent experts’ analysis, examining 25.6 million ocean-freight shipments valued at approximately $4 trillion, quantifies the pass-through rate at 96.1%, meaning foreign exporters absorb a mere 3.9% of tariff costs while U.S. importers and downstream consumers bear the remainder.

It replicates patterns documented during the 2018-2019 U.S.-China trade conflict, when researchers confirmed near-complete pass-through to American buyers. 

The 2025 tariff escalation, implemented under the "Liberation Day" framework on April 2, 2025, has produced identical dynamics at greater scale, generating an estimated $200 billion annual burden on the U.S. economy.

The current tariff regime represents a direct continuation of policies initiated in 2018, when the Trump administration imposed graduated tariffs on Chinese imports, ultimately covering approximately $360 billion in annual trade. Academic studies published in 2019 and 2020 documented several critical findings:

Complete import price pass-through: U.S. import prices rose essentially one-for-one with applied tariff rates. A 25% tariff resulted in approximately 25% higher prices at the border.

No exporter price adjustment: Chinese export prices, measured in U.S. dollars, remained stable. Exporters did not reduce prices to maintain market access.

Quantity-driven adjustment: Trade volumes declined significantly, Chinese import volumes fell 25-30% in heavily tariffed product categories, but prices paid by U.S. importers did not decrease.

Domestic price increases: Retail prices for tariff-affected goods rose by 10-15%, with partial pass-through to final consumers depending on market structure and competition.

Supply chain disruption costs: U.S. manufacturers relying on Chinese inputs faced higher costs, reduced profitability, and operational adjustments that generated deadweight losses beyond the tariff revenue collected.

These 2018-2019 dynamics established a clear baseline expectation: absent fundamental changes in market structure or policy design, expanded tariffs would replicate the same pass-through patterns. 

The 2025 results confirm this prediction with statistical precision.

The April 2, 2025 tariff announcement established a baseline 10% tariff on nearly all import categories, with elevated rates for specific countries and products. Key provisions included:

Customs revenue data confirms the fiscal impact: monthly collections surged from approximately $10 billion in early 2024 to $20-30 billion by late 2025—a revenue increase of $120-240 billion annually. This surge represents direct transfers from U.S. businesses and consumers to the Treasury, not wealth extracted from foreign economies.

The research design leverages two "natural experiments" that provide unusually clean empirical tests of tariff incidence.

Brazil shock (August 6, 2025): The sudden imposition of a 50% tariff on Brazilian imports created a discrete treatment event. Using other Latin American countries as controls, researchers tracked Brazilian export prices pre- and post-tariff. Pre-treatment trends showed parallel price movements, confirming valid comparison groups. Post-treatment analysis revealed zero systematic decline in Brazilian dollar-denominated export prices. The tariff burden passed entirely to U.S. importers.

India validation (August 7-27, 2025): India's phased tariff increases (25% to 50%) allowed testing with Indian customs data showing FOB (Free on Board) prices at departure. By comparing Indian exports to the U.S. against exports to the EU, Canada, and Australia, destinations without new tariffs, researchers isolated pure price effects.

Results: Indian FOB prices to the U.S. remained unchanged relative to control destinations. However, export volumes to the U.S. fell 18-24%, confirming adjustment through quantities rather than prices.

These findings eliminate alternative explanations involving shipping costs, insurance changes, or measurement issues. The pass-through operates at the exporter's departure price, not merely at the U.S. border.

Four structural factors explain the absence of exporter price adjustment:

Alternative market access: Major exporters can redirect sales to non-U.S. markets. China, India, and Brazil all increased exports to Europe, Southeast Asia, and other regions during 2025. Price cuts specific to the U.S. market sacrifice margins without gaining volume if alternative buyers exist.

Prohibitive tariff magnitudes: A 50% tariff requires a 33% price reduction to fully offset. Such margin compression is unsustainable for most firms. Maintaining margins on reduced volume preserves profitability better than maintaining volume at destroyed margins.

Supply chain stickiness: U.S. importers face significant switching costs, requalifying suppliers, retooling production, renegotiating contracts. This creates short-run pricing power for incumbent exporters who understand their customers cannot immediately source alternatives.

Strategic signaling and negotiation dynamics: Widespread price cuts signal weakness in trade negotiations and invite further tariff escalation. Maintaining prices demonstrates resolve and shifts adjustment costs visibly to U.S. consumers, potentially generating domestic political pressure for tariff removal.

The structural similarities between the 2018-2019 and 2025-2026 tariff episodes are striking:

The 2025 tariffs differ primarily in scope (affecting more countries) and magnitude (higher rates), but the fundamental dynamics remain unchanged. This represents policy failure through willful ignorance of established empirical findings.

The 96% pass-through to importers represents only the first stage. Subsequent transmission occurs through:

Wholesale and distribution: Importers pass costs to retailers and manufacturers, typically with markup preservation that amplifies price increases.

Manufacturing inputs: U.S. firms using imported components face higher production costs, reducing margins or forcing downstream price increases.

Retail pricing: Final consumer prices reflect accumulated cost increases, with pass-through rates varying by product category, market concentration, and demand elasticity. Evidence from 2018-2019 suggests 40-60% pass-through to retail prices in tariff-affected categories.

Deadweight losses: Beyond the $200 billion in tariff revenue, additional costs arise from consumption distortions (consumers substitute toward less-preferred alternatives), supply chain disruption (adjustment costs and inefficiencies), and reduced variety (product exit from U.S. market).

While American consumers absorb direct tariff costs, secondary effects are restructuring global economic relationships:

EU-China rapprochement: The collapse of the July 2025 Turnberry Agreement (EU-U.S. trade deal) and subsequent U.S. tariff increases on European goods drove Brussels toward Beijing. 

The September 2025 EU-China Comprehensive Economic Partnership and November 2025 EU accession to China's Belt and Road Initiative represent historic strategic pivots previously considered geopolitically implausible.

BRICS expansion and alternative architecture: Brazil, India, South Africa, and other BRICS+ members are accelerating development of dollar-alternative payment systems and intra-bloc trade frameworks, directly responding to U.S. trade policy unpredictability.

Diminished U.S. leverage: As partners develop trade relationships that exclude American participation, U.S. ability to shape global economic rules erodes. The tariffs intended to force favorable negotiations instead incentivize partners to reduce exposure to U.S. policy volatility.

In a stark departure from previous Atlantic alignment, French President Emmanuel Macron declared at the WEF in Davos that "China is welcome in Europe," signaling France's commitment to maintaining open economic and diplomatic channels with Beijing despite mounting U.S. pressure.

Macron's December 2025 Beijing visit yielded 12 bilateral agreements spanning aerospace, nuclear energy, agricultural products, and emerging technology sectors. 

The French delegation included 35 senior executives from Airbus, EDF, Danone, and French luxury and agricultural companies, collectively representing sectors accounting for approximately €35 billion in annual French exports to China.

The European Parliament just voted to indefinitely suspend the EU-U.S. trade agreement negotiated at Trump's Turnberry golf resort in July 2025. 

The suspension followed Trump's January 18, 2026 announcement of 10% tariffs (escalating to 25% by June 2026) on Denmark, Sweden, Norway, France, Germany, the Netherlands, Finland, and the United Kingdom unless these nations facilitate U.S. acquisition of Greenland.

After all, Trump stated that the proposed tariff would not be implemented as a Greenland deal framework reaching out.

The visit, described by officials as centered on trade and investment, signals the Labour government's commitment to resetting ties with the world's second-largest economy.

Starmer's delegation includes dozens of business executives and two cabinet ministers, focusing on attracting Chinese investment. China currently ranks as the UK's fourth-largest trading partner, with bilateral trade valued at approximately £100 billion ($137 billion) in the 12 months ending mid-2025.

High-exposure sectors to underweight: Consumer discretionary (retailers importing finished goods), industrials (manufacturers using imported inputs), and emerging market equities (export-dependent economies) face structural headwinds from tariff-driven cost increases and volume declines.

Defensive positioning: Domestic-focused consumer staples, healthcare (inelastic demand, pricing power), and utilities (minimal tariff exposure) offer relative insulation.

Tactical considerations: Domestic manufacturing beneficiaries require scrutiny—reshoring rhetoric must translate to actual capacity additions. Commodity producers may benefit from higher domestic prices, but demand destruction risks offset gains.

The tariff regime operates as a $200 billion annual consumption tax on Americans, empirically validated across 25.6 million transactions and confirmed through natural experiments with Brazil and India. This replicates dynamics documented during 2018-2019, demonstrating policy continuity despite rhetorical claims that tariffs extract wealth from foreign producers.

The political narrative, that tariffs penalize China, India, or Brazil, contradicts the empirical reality measured at U.S. customs facilities. Foreign exporters pay 4%. American businesses and households pay 96%. This is not a policy debate subject to interpretation. It is a quantified economic fact.

The strategic consequences compound the direct costs: tariff policy is accelerating the very geopolitical realignments it purportedly aims to prevent, driving allies toward Chinese partnership and fragmenting the dollar-denominated trade architecture that has underpinned American economic influence since 1945.

In both economic and strategic terms, the 2025 tariff escalation represents a self-inflicted wound, an own goal scored against the US interests while claiming to advance them.

Subscribe to ETF Alert for real-time market news. 

We track the trends that move billions, before they hit mainstream headlines.

[Subscribe to ETF Alert]

What's catching investor attention today: "Groundhog Day": Zelensky Torches Europe's Defense Inaction
Disclaimer: This is not financial or investment advice. Do your own research and consult a qualified financial advisor before investing.