The Trump administration’s trade policies are not raising prices of goods for U.S. consumers. And the pressure they once were putting on U.S. business profits is now lifting.

Prices for goods in the U.S. fell by half a percentage point in August, two months after tariffs on $200 billion of Chinese imports rose from 10 percent to 25 percent, the Labor Department said Wednesday. Excluding the volatile food, energy, and trade services categories, prices for goods were flat in the month on a seasonally adjusted basis.

Perhaps more surprisingly, the pressure on business margins for tariffs appears to be lifting. Prices of materials and components for consumer goods have fallen dramatically and business margins have improved, according to the Producer Price Index data released Wednesday. Retailer margins grew by more than 2 percent in August.

Compared with a year ago, goods prices were down 0.1 percent. Excluding foods, energy, and trade services, prices were up 1.9 percent over the past 12 months.

Overall inflation for goods and services was muted. The Producer Price Index rose 0.1 percent for the month, half of what it was the previous month. and is up just 1.8 percent for the year.

So who is paying for the tariffs? We know the U.S. government has collected over $60 billion in tariffs over the last 12 months, so it is clear that someone is footing the bill. But the pricing data indicate that the often-repeated mantra that “tariffs are taxes on consumers” is inaccurate.

Tariffs are taxes, to be sure. But unlike a sales tax or a gas tax, consumers do not directly pay any tariffs. Tariffs are paid by importers, often large U.S. companies that are importing from their own foreign subsidiaries or foreign contractors. But businesses cannot raise their prices just because their costs or taxes go up. Sometimes they have to absorb the costs.

We have seen this recently with wages, which have been rising faster than inflation, which means labor costs are rising faster than prices. Similarly, the massive cut in corporate taxes enacted at the end of 2017 did not automatically translate into businesses slashing prices because their tax costs had fallen.

In addition, the Chinese currency has depreciated over the past year, which makes imports from China less expensive. And there is anecdotal evidence that Chinese manufacturers are slashing prices in an attempt to hold on to market share in the U.S.

“We have put 25 percent on $250 billion of Chinese goods coming into our country, including $50 billion of high technology equipment. You haven’t seen any, or virtually any, price increase,” President Trump said this summer. “Because what China does is they subsidize their companies because they want to keep people working and they want to stay competitive.”

No Inflation Despite Tariffs

What both the Producer Price Index, which measures prices received by businesses, and the better known Consumer Price Index have been suggesting over the last year or so is that tariffs have not had a very big impact on prices in the U.S. That should not be very surprising. The metals tariffs have led to U.S. metals producers expanding capacity, which reduces the impact of taxes on imported metals. And a ten percent tariff on $200 billion of goods in our $20.5 trillion economy amounts to a 0.1 percent tax.

When the San Francisco Federal Reserve estimated the effect of tariffs on prices, they came to the conclusion that it had a 0.1 percent impact. But that may exaggerate the effect on consumers if businesses cannot pass on the cost of tariffs.

Durable goods, products purchased by consumers and businesses that are expected to last three years or more, are a good place to look for signs of metals tariff-led inflation. The producer-price data shows that prices of raw materials used in durable fell 0.7 percent in August, the fifth straight monthly decline. Compared with a year ago, prices are down a whopping 5 percent. Components for durable goods, the prices of parts that go into durables, were up just 0.1 percent and are up 1 percent from a year ago. “Final demand” consumer durable good prices–those that get reflected on store shelves–rose 0.2 percent in August and are up just 1 percent compared with a year ago.

The nondurable goods category is where we might see signs of the China tariffs. Materials prices here fell 0.8 percent in August. Compared with a year ago, prices are d0wn 8 percent. Parts fell 0.2 percent for the month and are up flat compared with a year ago. The final demand category shows prices up just 0.1 percent in August and up 2.6 percent compared with a year ago, a deceleration from June’s 3 percent year-0ver-year gain and July’s 2.7.

So the picture drawn by these broad categories is one of no inflationary pressure in durable goods, low and declining inflation in nondurable goods, extremely strong deflationary pressures further up in the supply chain, and no sign of tariff pressure at all.

Metals Tariffs Haven’t Raised Prices on Planes, Trains, or Automobiles

What about specific items? Still no signs of tariff price pressure. Start with products that were predicted to rise in price because of the metals tariffs. Specifically, cars and trucks.

“U.S. President Donald Trump’s steel and aluminum tariffs will boost car prices by hiking commodity costs for manufacturers, automakers have warned,” Reuters reported last year.

That has not happened. Car prices were rose 0.1 percent. They are up just 0.2 percent from a year ago. Prices of light trucks–which include all those SUVs that so many American families love–also fell 0.2 percent. They are down 0.3 percent from a year ago. That’s not great news for automakers but it certainly means they were wrong when they predicted tariffs would put up prices.

Car and truck parts? These fell 0.4 percent in August, the second consecutive monthly decline, and are up just 0.1 percent from a year ago. Campers and recreational trailers? Flat in August and up just 1.3 percent from a year ago.

Seeing a pattern yet? Let’s look at some heavy-duty steel and aluminum products. Aircraft prices were flat in August and are up 1.8 percent from a year ago, a deceleration from the 2 percent annual gain a month earlier.

Perhaps the prices of aircraft have been held down by the trouble with Boeing planes. So let’s look at the prices of ships in August: flat for the month and 2.1 percent annually, a slight acceleration from earlier in the year. Railroad equipment was flat in August following two consecutive months of declines, and prices are down 0.3 percent for the year.

Some of these metals heavy items, including auto parts and ships, are actually doubly subject to tariffs because they were hit by both metals tariffs and China tariffs.

Prices for Consumer Goods Are Not Rising Due to China Tariffs

Furniture is one of the biggest categories of consumer items that were hit by the China tariffs. Household furniture prices, however, were down 0.1 percent in August and up 2 percent for the year.

Soaps and detergents imported from China saw their tariffs rise from 10 percent to 25 percent but prices were up just 0.1 percent in August and 0.57 percent compared with a year ago.

A lot of categories of home electronic equipment were hit with the higher China tariffs. Prices here were up 0.2 percent in August. Compared with a year ago, prices are up just 1.2 percent.

Household appliances had been pushed up by a big jump in the price of washing machines following a specific tariff intended to counteract anti-competitive dumping that had depressed prices. But this has begun to unwind. In August, household appliance prices fell 0.2 percent, a the third consecutive monthly decline. For the year they are up just 3.4 percent.

Computer prices fell 0.4 percent in August and are down 5.8 percent for the year. Another spot of serious price deflation.

A lot of the materials used in textile and clothing manufacturing in the U.S. got hit with China tariffs, including man-made textiles like rayon, nylon, and polyester. Synthetic fiber prices, however, rose 0.6 percent in August. Compared with a year ago, they are up 0.8 percent. Yarn and thread prices fell 0.7 percent in August and are down 2.9 percent from a year ago. Finished fabric prices rose 0.1 percent in August and are up 1.8 percent compared with a year ago.

And the tariffs on these are not pushing up prices for clothing. Women’s clothing prices were rose 0.2 percent in August and are down 1.7 for the year. Men’s clothing prices rose 0.2 percent in the month and are up 2 percent for the year.

Margins Are Improving

Tariffs initially raised prices for businesses further out on the production chain but these did not get passed on to consumers in the form of higher prices for final goods, according to the data. This squeezed profit margins as businesses absorbed the cost of the higher tariffs.

Now the year over year prices for materials and components are falling as supply-chains have adjusted around the tariffs and profit margins are improving.

Evidence for this in the producer-price index comes from a category called “trade services.” Unlike the rest of the index, which measures prices received by businesses, trade services is a measure of mark-ups, the difference between what a retailer or wholesaler paid for inventory and what they sold it for. Margins for China-tariffed TV, video, and photographic equipment were down a stunning 20.2 percent for the year and fell 1.5 percent in July. But they started to recover in August, rising 2.2 percent for the month and are down just 18.3 percent for the year.

Hardware stores, which carry a lot of tariffed Chinese goods, saw margins fall 0.2 percent in July for a 5.0 percent annual decline. They improved 1 percent in August and are down just 2.9 percent year over year. Keep in mind that these figures are all seasonally adjusted so the improvement is not caused by some seasonality in demand for hardware.

Auto-dealer margins fell 3.2 percent in July and were down 2.5 percent for the year. But these bounced back in August for a 0.5 percent gain. On an annual basis, however, they’re still down 2.8 percent.

If you go even further out in the supply chain you can see even more evidence that the impact of metals tariffs on costs is now fading from the data and that these costs never got passed through to consumers. Prices of steel mill products, which are an intermediate good used to produce consumer goods, fell 1.3 percent in August. These fell in five of the six previous months. On an annual basis, which now means comparing prices of products immediately after the steel tariffs and more than a year after they were imposed, prices are down 10.6 percent.

It’s also likely that businesses have been better able to absorb the higher prices of imported goods or tariffed metals because last year’s massive cut in the corporate tax rate gave a big boost to after-tax profits. That softens the blow of a slight compression of pre-tax margins.

The Tariff Hoax Debunked

One of the reasons so many economists and journalists claimed, without evidence, that the Trump administration’s tariffs would be passed on to consumers is that they assumed the purpose of tariffs was to raise domestic prices to boost the bottom lines of domestic manufacturers.

But that was not the goal of the China tariffs at all. The tariffs were aimed at pressuring China to abandon its unfair and illegal trade practices. Metals tariffs did aim to boost the bottom line of U.S. steel and aluminum producers but this can be accomplished by squeezing margins of producers of intermediate products–margins that had been inflated by metals made artificially cheap by China dumping on the global market–without harming consumers.

U.S. businesses appeared to have mostly absorbed the tariffs, which put pressure on profit margins. But as businesses have adjusted to the tariffs, that pressure is now coming off.