Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy

Alberto  Cavallo; Gita  Gopinath; Brent  Neiman; Jenny  Tang

Working Paper | HBS Working Paper Series | 2020

Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy

by Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang

Abstract

We use micro data collected at the border and the store to characterize the price impact of recent US trade policy on importers, exporters, and consumers. At the border, import tariff passthrough is much higher than exchange rate passthrough. Chinese exporters did not lower their dollar prices by much, despite the recent appreciation of the dollar. By contrast, US exporters significantly lowered prices affected by foreign retaliatory tariffs. In US stores, the price impact is more limited, suggesting that retail margins have fallen. Our results imply that, so far, the tariffs' incidence has fallen in large part on US firms.

Keywords: Trade policy; tariffs; exchange rate passthrough; Economics; Trade; Policy; Inflation and Deflation; United States; China;

Language: English

Format: Print

47 pages

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Citation:

Cavallo, Alberto, Gita Gopinath, Brent Neiman, and Jenny Tang. "Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy." NBER Working Paper Series, No. 26396, October 2019. (Revised June 2020. Harvard Business School Working Paper, No. 20-041, October 2019)

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Online Appendix

This file contains the Online Appendix with additional results and details.
Replication Data and Code

All the replication data and code are available in this Harvard Dataverse.

In early 2020, a coronavirus pandemic swept the globe, ushering in unprecedented disruptions to the global economy. Both supply and demand were decimated by lockdowns and border closings, as well as reduced spending by fearful consumers. In response, governments around the world made equally unprecedented policy moves, spending trillions of dollars on fiscal stimulus measures to bridge the gap during the self-imposed shutdown. As the pandemic progressed, governments had to weigh the costs between loss of life due to opening up their economies and the economic devastation caused by delaying a reopening.

The Covid-19 Pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of inflation. I use data collected from credit and debit transactions in the US to update the official basket weights and estimate the impact on the Consumer Price Index (CPI). I find that the Covid inflation rate is higher than the official CPI in the US, for both headline and core indices. I also find similar results with Covid baskets in 12 out of 17 additional countries. The difference is significant and growing over time, as social-distancing rules and behaviors are making consumers spend relatively more on food and other categories with rising inflation, and relatively less on transportation and other categories experiencing significant deflation.

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Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy

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