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

37 Pages Posted: 17 Oct 2019

See all articles by Alberto Cavallo

Alberto Cavallo

Harvard University - Business School (HBS)

Gita Gopinath

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brent Neiman

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Jenny Tang

Federal Reserve Bank of Boston

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2019

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 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 US tariffs, we show that US exporters lowered their prices on goods subjected to foreign retaliatory tariffs compared to exports of non-targeted goods.

Keywords: trade policy, tariffs, exchange rate passthrough

JEL Classification: F01, F13, F14, F04

Suggested Citation

Cavallo, Alberto and Gopinath, Gita and Neiman, Brent and Tang, Gaoyan, Tariff Passthrough at the Border and at the Store: Evidence from US Trade Policy (October 1, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-24. Available at SSRN: https://ssrn.com/abstract=3470793 or http://dx.doi.org/10.2139/ssrn.3470793

Alberto Cavallo

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Gita Gopinath

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brent Neiman (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/brent.neiman/index.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gaoyan Tang

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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