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    Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy
    12 Nov 2019Working Paper Summaries

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

    by Alberto Cavallo, Gita Gopinath, Brent Neiman, and Jenny Tang
    Collecting and analyzing microdata on prices and the reaction of importers, retailers, and exporters to US trade policy since 2018, this study finds most of the tariffs’ incidence rests with the US firms.
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    Author Abstract

    We use micro data collected at the border and at retailers to characterize the effects brought by recent changes in U.S. 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 total prices paid by importers, suggesting 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 multi-national 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 passthrough of tariffs to their prices may not persist. Finally, in contrast to the case of foreign exporters facing U.S. tariffs, we show that U.S. exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: October 2019
    • HBS Working Paper Number: NBER Working Paper Series, No. 26396
    • Faculty Unit(s): Business, Government and International Economy
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    Alberto F. Cavallo
    Alberto F. Cavallo
    Edgerley Family Associate Professor of Business Administration
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