About half of all goods subject to US tariffs involve trade between related parties within the same multinational company, according to a new report from the Tax Foundation. The analysis, published in 2025, estimates that 45.6 percent of the current tariff base consists of imports between affiliated firms—transactions between US parent companies and their foreign subsidiaries, or between foreign parent companies and their US-based operations. The report concludes that this high rate of intra-firm trade significantly undermines the claim that tariffs primarily tax foreign companies, instead showing that they raise costs for American production networks and domestic manufacturing operations.
Census Bureau data shows that 49.5 percent of US goods imports in 2024 came from related parties, a share that has held steady over the past two decades, ranging between 46 and 51 percent since 2005. In specific sectors, the concentration is even higher: auto imports reached 96.8 percent related-party trade, while pharmaceutical imports hit 85.5 percent. Metals imports stood at 34.0 percent, and all other imports were 42.4 percent related-party trade. When accounting for exemptions on specific goods, the report estimates that related-party trade subject to current tariffs maintains similar proportions, with auto imports at 97.1 percent and pharmaceuticals at 84.5 percent.
The report finds that tariffs on related-party trade function like a tax on global supply chains used by US-based businesses, raising the cost of intermediate goods and capital rather than solely burdening foreign producers. The authors write that the typical distinction of whether the importer or exporter bears the cost "collapses" when the two parties are affiliated within the same multinational enterprise. According to the report, most imports consist of intermediate and capital goods that support domestic production rather than replace it, meaning tariffs increase input costs for manufacturers based in the US. The analysis notes that tariff rates have changed more than 50 times since March 2025, creating policy uncertainty that leaves businesses unable to make long-term decisions about investment and hiring.
The report explains that multinational firms organize different production stages across countries to maximize efficiency based on factors like specialized labor, access to raw materials, and proximity to suppliers or customers. When tariffs are imposed on these imports, they drive up production costs for domestic operations regardless of whether the parent company is American-owned or foreign-owned. For instance, a Japanese automaker operating a US plant faces higher costs that discourage investment and employment growth domestically, even though the parent entity is foreign. The analysis adds that tariffs on inputs for goods made in the US force companies to either charge higher prices when exporting to foreign markets or accept lower profit margins, reducing competitiveness against supply chains that avoid the US entirely.
The report warns that policymakers should exercise caution when using tariffs as a blunt instrument, noting they can easily harm American production even when appearing to target foreign businesses. It argues that tariffs encourage costly supply chain reorganization as companies seek to lower their tariff exposure rather than improve productivity, ultimately driving prices higher and wages lower while decreasing returns to work and investment. In an economy where American and foreign businesses span borders, the report concludes, tariffs punish efficient operations and slow competitiveness rather than protect domestic industry.