Why Tariff Costs Are Borne by American Consumers, Strangling Crypto Market Liquidity

New research from Germany’s Kiel Institute for the World Economy reveals a troubling economic reality that extends far beyond traditional markets—it’s now affecting the crypto sector. The study analyzing US tariffs from January 2024 through November 2025 shows that costs are overwhelmingly borne by domestic consumers and importers, not foreign producers as political messaging suggests. This cost transfer mechanism has created an unexpected side effect: the cryptocurrency market has entered a prolonged liquidity stagnation since October.

The Hidden Cost Transfer: How Tariffs Are Borne Through Supply Chains

The numbers tell a stark story. Of all tariff burdens, 96% are borne by American consumers and importers, while foreign exporters shoulder only 4%. Nearly $200 billion in tariff revenue flows directly from American wallets, despite claims that tariffs punish foreign competition.

Here’s how the mechanism works: Foreign exporters respond to tariffs not by raising prices, but by reducing shipment volumes and accepting lower margins. US importers then carry these costs forward at the border. Within the first six months, only about 20% of tariff expenses reach consumer price tags. The remaining 80% gets absorbed by importers, distributors, and retailers—squeezing their profit margins and reducing available capital for operations.

Liquidity Drain: Why Crypto Markets Suffer When Consumer Purchasing Power Weakens

This supply-chain squeeze has a cascading effect on consumer behavior. As disposable income shrinks due to absorbed tariff costs, households and businesses have less cash available for discretionary spending—including speculative investments. The cryptocurrency market, which thrives on inflows of speculative capital, has become hypersensitive to these liquidity shifts.

Since October, the crypto market has neither crashed sharply nor surged. Instead, it has entered a state of stagnation—stuck in a narrow range as dried-up liquidity fails to fuel either bullish rallies or panic selling. This isn’t a market correction; it’s a liquidity squeeze.

Market Reality: The Numbers Behind Cost Distribution

The Kiel Institute’s research directly challenges the narrative that tariffs are borne by foreign competitors. The evidence shows that American businesses and consumers are the true bearers of these costs. With profit margins compressed and discretionary spending curtailed, the financial system has less fuel to drive speculative asset demand.

For crypto markets, the implication is clear: macroeconomic headwinds driven by domestic cost-absorption create structural headwinds for liquidity-dependent assets. Until consumer purchasing power stabilizes, expect the crypto market to remain in its current subdued state—neither collapsing nor climbing, but firmly borne down by the weight of upstream economic pressures.