US tariffs did little to lower export prices, shifted imports to cheaper, lower-quality goods: IMF paper

Higher US tariffs did little to force foreign exporters to reduce their prices and instead prompted American importers to switch to cheaper, and in part lower-quality products, according to an International Monetary Fund (IMF) Working Paper.

The paper finds that tariffs imposed by the United States were largely passed through to import prices, with exporters absorbing only a small fraction of the additional cost. Rather than lowering their pre-tariff prices to remain competitive, foreign suppliers largely maintained their prices, leaving US importers to adjust by sourcing less expensive alternatives.

According to the study, the decline observed in aggregate import prices was driven not by exporters offering discounts but by a reallocation of imports towards lower-priced suppliers and products. The authors note that this compositional shift also reflected a movement towards lower-quality imported varieties, a pattern that was similarly observed during the 2018-19 US-China tariff episode.

Using detailed transaction-level US customs data covering the tariff increases introduced in 2025, the paper finds that the average pass-through of tariffs to import prices remained close to complete. Exporters reduced their pre-tariff prices only marginally, indicating that the burden of higher tariffs was largely borne through changes in sourcing rather than pricing.

The study argues that the shift towards lower-quality imports has broader implications beyond trade flows. It notes that lower-quality imported intermediate inputs could weigh on firms' productivity, while consumers may also face reduced product quality even if average import prices appear lower.

The findings suggest that tariffs altered the composition of US imports rather than delivering substantial price concessions from foreign exporters. As importers diversified away from higher-priced suppliers, the resulting decline in average import prices reflected changes in the import basket instead of a reduction in the prices charged for comparable products.

Since returning to office in 2025, US President Donald Trump has significantly expanded tariffs on imports from several trading partners, arguing that higher duties would encourage domestic production and improve America's trade position. The IMF paper examines how these tariff increases affected import prices and sourcing patterns.

The findings come as the United States has imposed higher tariffs since April 2025 on imports from several trading partners, including India, as part of its broader tariff policy under President Donald Trump. India has been engaged in trade negotiations with Washington while seeking relief from these duties and to seal a bilateral trade deal in the near future. 

The paper is authored by IMF economists JaeBin Ahn, Lorenzo Rotunno and Michele Ruta. It notes that the analysis is based on IMF staff research and that the views expressed are those of the authors and do not necessarily represent the views of the IMF, its Executive Board or IMF management.