Tariff Pass-Through and Import Reallocation

IMF Working Papers, July 17, 2026

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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, duty-exclusive aggregate import prices decline significantly with tariff increases.
The product-level decline is driven by within-product reallocation toward lower-priced sources—stronger in products facing larger tariff hikes.
Reallocation operates primarily through:
- Entry of lower-priced varieties.
- Exit of higher-priced varieties.
Estimates of variety appeal indicate that part of this reallocation reflects shifts toward lower-quality varieties; this quality channel is also present in the 2018–19 U.S.–China tariff episode.

Full pass-through at the variety level: duty-exclusive prices for a given country-product variety do not change with tariff hikes.
Aggregate product-level response: despite no variety-level adjustment, the composition of sourcing within products shifts, producing a decline in duty-exclusive aggregate import prices.
Composition effects: within-product reallocation is stronger for products facing larger tariff hikes.
Quality channel: measured shifts in variety appeal point to movement toward lower-quality varieties as part of the reallocation.

Consumer welfare:
- Reallocation toward lower-priced and partly lower-quality varieties affects the quality of imported consumer goods.
Productivity and inputs:
- Quality changes in imported inputs may affect downstream productivity through altered input quality.
Historical consistency:
- The quality reallocation channel is present both in the 2025 U.S. tariff episode studied and in the 2018–19 U.S.–China tariff episode.

IMF Working Paper: "Tariff Pass-Through and Import Reallocation" — JaeBin Ahn, Lorenzo Rotunno, Michele Ruta (July 17, 2026).