IMF Working Papers

We study how U.S. tariff hikes in 2025 have transmitted to import prices. Consistent with recent evidence, we find that duty-exclusive import prices at the variety (country-product) level do not adjust to tariffs, implying full pass-through to duty-inclusive prices at the border. At the product level, however, duty-exclusive aggregate import prices decline significantly with tariff increases. We show that this product-level decline is driven by within-product reallocation toward lower-priced sources—stronger in products facing larger tariff hikes—and operates primarily through the entry of lower-priced varieties and the exit of higher-priced ones. Estimates of variety appeal indicate that part of this reallocation reflects shifts toward lower-quality varieties, a channel that is also present in the 2018–19 U.S.–China tariff episode. These reallocation effects carry implications for consumer welfare and productivity through the quality of imported goods and inputs.