Live updates: China, Mexico warn against trade war after Donald Trump vows to hike tariffs

By Ben Chu, BBC Verify

The question of where the final “economic” burden of tariffs falls, as opposed to the upfront bill, is complicated.

If the US importing firm passes on the cost of the tariff to the person buying the product in the US in the form of higher retail prices, it would be the US consumer that bears the economic burden.

If the US importing firm absorbs the cost of the tariff itself and doesn’t pass it on, then that firm is said to bear the economic burden in the form of lower profits than it would otherwise have enjoyed.

Alternatively, it is possible that foreign exporters might have to lower their wholesale prices by the value of the tariff in order to retain their US customers.

In that scenario, the exporting firm would bear the economic burden of the tariff in the form of lower profits.

All three scenarios are theoretically possible.

But economic studies of the impact of the new tariffs, external that Trump imposed in his first term of office between 2017 and 2020 suggest that most of the economic burden was ultimately borne by US consumers.

The non-partisan Peterson Institute for International Economics estimated, external in May – before the latest announcement – that Trump’s proposed tariffs would lower the incomes of Americans, with the impact ranging from around 4% for the poorest fifth to around 2% for the wealthiest fifth.

A typical household in the middle of the US income distribution, the think tank estimates, would lose around $1,700 each year.