Tariff Pass-Through and Substitution: Barcode-Level Evidence from the US-China Trade War

Abstract

This paper uses novel barcode-level country of origin data to study the incidence of the US-China trade war in 2018-2019. I find that the incidence of these policies initially fell entirely to US consumers, which is in line with previous research. However in the medium to long-run I find that the incidence shifts away from US consumers and towards Chinese exporters. Specifically, I find that price pass-through in the eight months following the final tariff was only 23%, whereas the market share of Chinese goods sold in America decreased by 32% over the same period. Most of this decrease occurred through stores dropping Chinese varieties from their shelves. I find that substitution away from Chinese imports did not lead to significant gains for American goods. The beneficiaries of these policies were mainly countries with geographic proximity to China - specifically Thailand, Japan, Philippines, Australia, and New Zealand. Thailand specifically experienced a more than doubling of their market share within the US domestic market in the months following the final tariff increase of the US-China trade war.

Keywords: Tariffs, pass-through, trade war

JEL Classification: F10, F13, F52