A recent International Monetary Fund (IMF) Working Paper indicates that higher US tariffs have largely failed to achieve their intended goal of lowering export prices. Instead, the study found that these tariffs led American importers to seek out cheaper, and often lower-quality, goods.
The paper, authored by IMF economists JaeBin Ahn, Lorenzo Rotunno, and Michele Ruta, challenges the notion that tariffs force foreign suppliers to offer discounts. It concludes that the burden of these tariffs was primarily borne by changes in sourcing rather than price reductions from exporters.
Tariffs Passed to Import Prices
The analysis, based on detailed transaction-level US customs data from tariff increases introduced in 2025, reveals that tariffs were almost entirely passed through to import prices. Foreign exporters maintained their pre-tariff prices, absorbing only a minimal fraction of the additional costs. This suggests that the decline in aggregate import prices observed was not due to exporters offering discounts, but rather a reallocation of imports.
Shift to Cheaper, Lower-Quality Goods
Rather than compelling foreign suppliers to reduce prices, the tariffs prompted US importers to pivot towards less expensive alternatives. This compositional shift also involved a movement towards lower-quality imported varieties, a pattern previously noted during the 2018-19 US-China tariff disputes.
The implications of this shift extend beyond trade flows. The paper warns that an influx of lower-quality imported intermediate inputs could negatively impact firms' productivity. Furthermore, consumers may face a reduction in overall product quality, even if average import prices appear to decrease.
Context of US Tariff Policy
These findings come as US President Donald Trump has significantly expanded tariffs on imports from various trading partners, including India, since returning to office in 2025. The stated aim of this broader tariff policy is to encourage domestic production and improve America's trade position. India, for its part, has been engaged in negotiations with Washington, seeking relief from these duties and working towards a bilateral trade deal.
It is important to note that the views expressed in the IMF Working Paper are those of its authors and do not necessarily represent the official stance of the IMF, its Executive Board, or management.