The Fed’s Miran Exposes How Economists Got Tariffs Completely Wrong
Federal Reserve Governor Stephen Miran delivered a speech Monday taking apart the tariff-inflation panic. His bottom line: tariffs should raise the consumer price level by around two-tenths of one percent. Even under a full pass-through assumption, he puts the outer bound at roughly four-tenths, with the low end near zero if wholesalers absorb the cost.
The key is tax incidence: who can move and who’s stuck.
Basic economics says the answer to the question of who bears the burden of a tax depends on flexibility. The side that can adjust—buy elsewhere, sell elsewhere—escapes. The side that can’t, pays.
Miran’s claim is that the United States is the flexible party. American buyers can shift suppliers across countries or toward domestic production. Foreign producers, by contrast, have factories and workforces built around serving U.S. demand and have fewer good alternatives when access to the American market becomes more expensive.
“As the largest trade deficit country, there are few substitutes, if any, for American demand, but many substitutes for potential supply,” Miran said.
A lot of standard trade setups—and many empirical pass-through exercises built on them—effectively assume highly elastic foreign supply. Build that in, and you’ll predict the burden lands on U.S. buyers. Miran argues that gets reality backwards for a large share of traded goods once you account for sunk investment.
Federal Reserve Governor Stephen Miran gives an interview on the floor of the New York Stock Exchange (NYSE) in New York on Nov. 10, 2025. (Michael Nagle/Bloomberg via Getty Images)
The Breakthrough on Who Pays Tariffs
Miran leans heavily on a 2018 paper by economist Anson Soderbery in the Journal of International Economics. The paper tackles a core empirical problem: how to estimate exporter-side responsiveness without relying on fragile instruments or building in constant-cost, constant-markup assumptions that pre-load the answer.
Soderbery estimates elasticities from trade patterns using variation in how the same exporters sell comparable products into different destination markets, letting behavior reveal supply and demand responses rather than assuming them.
Using Soderbery’s product-level elasticity estimates, Miran concludes that for roughly 70 percent of imported goods by value, exporters bear at least 70 percent of the tariff burden. And for about half, exporters bear at least 80 percent.
Why do exporters wind up footing so much of the tariff bill. The explanation is the inflexibility created by an installed capital base.
Once you’ve built a factory to serve the American market, you can’t easily move or repurpose it. Workers accumulate specialized skills. Supply chains harden. “Welders do not easily become hairdressers,” as Miran put it.
This is tax incidence theory from public finance: immobile factors bear more of the burden. Property bears more of the property tax than people because people can move. Yet trade economics often treats capital as if it were effortlessly redeployable.
“It is exceedingly strange that much of the literature on trade and tariff incidence neglects to study not only capital altogether but installed capital in particular,” Miran wrote.
Think about Chinese exporters facing U.S. tariffs. They’ve invested billions in factories, equipment, and supply chains geared to American demand. Shifting to other markets is costly and slow. Meanwhile, American retailers can shift purchases to Vietnam, Mexico, or domestic suppliers with less pain.
In that world, exporters cut prices to keep the business. The party that’s stuck pays.
Rerouting Warps the Evidence
Numerous studies of the 2018–2019 trade war claim that tariffs raised American prices. Miran argues those results can be biased upward by a selection problem: tariff avoidance changes what researchers actually observe.
When the U.S. imposes tariffs, some exporters avoid them by routing through third countries or by exploiting exemptions like de minimis treatment for low-value shipments. But the decision to reroute isn’t random—it follows incentives.
Miran’s point is simple: where exporters would otherwise eat a lot of the tariff, they have the strongest reason to reroute. That can make the observed set of “tariffed” transactions unrepresentative—tilting samples toward cases where pass-through is easier and making the average look larger than it is.
He cites research by Jackson Mejia suggesting transshipment affected up to 40 percent of tariffed product categories, with rerouted volumes approaching 25 percent in some goods.
Miran also offers three reality checks against the tariff-inflation story. First, the timing doesn’t fit: core goods inflation in the CPI began turning up in mid-2024—before this year’s tariffs.
Second, import-intensive core goods haven’t risen faster than core goods overall since late last year. If tariffs were driving the story, the most import-heavy categories should stand out. They don’t.
Third, U.S. goods inflation doesn’t look like an international outlier. He points to comparisons with Canada, the U.K., the EU, Mexico, and others and argues the U.S. doesn’t “stick out” in a way consistent with large tariff-driven inflation.
What It Implies for the Fed
Miran’s analysis points toward faster rate cuts. The price effects of tariffs are small and look like a one-time price-level shift rather than an inflation process the Fed should chase.
“Keeping policy unnecessarily tight because of an imbalance from 2022, or because of artifacts of the statistical measurement process, will lead to job losses,” Miran warned.
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