Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy

Abstract

We use micro data collected at the border and at retailers to characterize the effects brought by recent changes in US trade policy-particularly the tariffs placed on imports from China-on importers, consumers, and exporters. We start by documenting that the tariffs were almost fully passed through to the total prices paid by importers, suggesting that the tariffs' incidence has fallen largely on the United States. Since we estimate the response of prices to exchange rates to be far more muted, the recent depreciation of the Chinese renminbi is unlikely to alter this conclusion. Next, using product-level data from several large multinational retailers, we demonstrate that the impact of the tariffs on retail prices is more mixed. Some affected product categories have seen sharp price increases, but the difference between affected and unaffected products is generally quite modest, suggesting that retail margins have fallen. These retailers' imports increased after the initial announcement of possible tariffs, but before their full implementation, so the intermediate pass-through of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods.

Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism

“…17 Total tariffs paid are imputed based on total imported value of tariffed products in 2016 times the respective tariff increase as of April 2019. The calculation assumes that the import tariff burden is borne as an additional cost for U.S. firms consistent with evidence of complete pass-through of the tariffs onto American firms (Amiti, Redding and Weinstein, 2019;Fajgelbaum, Goldberg, Kennedy and Khandelwal, 2020;Cavallo, Gopinath, Neiman and Tang, 2019).…”

“…Amiti, Redding and Weinstein (2019) and Fajgelbaum, Goldberg, Kennedy and Khandelwal (2020) study the direct impacts of the 2018-2019 U.S. import tariff increases on U.S. import prices and the direct impact of the foreign retaliatory tariff increases on U.S. export prices. Cavallo, Gopinath, Neiman and Tang (2019) also examine the pass-through of U.S. import tariff increases on to U.S. importers and retailers using firm-level data. These studies do not consider spillover effects of increases in U.S. import tariffs on U.S. exports through supply chains.…”

What Are the Price Effects of Trade? Evidence From the U.S. and Implications for Quantitative Trade Models

“…First, a growing literature examines the reduced-form impact of changes in trade on prices, but no paper uses comprehensive data on consumer prices as we do. Amiti et al (2019), Cavallo et al (2019), Fajgelbaum et al (2019) and Flaaen et al (2019) estimate the effects of the 2018 "trade war" on import and producer prices over a one-year horizon.…”

An Economic Analysis of the US-China Trade Conflict

“…We now turn to the (short-term) price and welfare effects of the tariff increases on the United States analyzed in various studies based on observed changes in the data. Various publications on this come to a similar conclusion (Amiti et al, 2019a(Amiti et al, , 2019bFajgelbaum et al, 2019;and Cavallo et al, 2019) on the price effects in the US. Both in 2018 and 2019 there has been a complete passthrough of US tariffs to importer prices.…”