IMF paper: 2025 US tariffs fully passed through to import prices, shifted sourcing to cheaper lower-quality goods

An International Monetary Fund Working Paper published in July 2026 concludes that US tariff hikes introduced in 2025 were transmitted almost fully into duty-inclusive import prices at the border, while duty-exclusive prices charged by foreign exporters showed little adjustment. Rather than securing substantial price concessions from suppliers, the tariffs prompted US importers to shift sourcing toward lower-priced varieties, including some of lower quality, according to the study (IMF Working Paper WP/26/149).

The paper, titled "Tariff Pass-Through and Import Reallocation" and authored by IMF economists JaeBin Ahn, Lorenzo Rotunno and Michele Ruta, examines monthly US Census Bureau data on imports and collected duties from February through December 2025. It analyses prices at both the detailed variety level (country of origin combined with HS 10-digit product) and the broader product level. At the variety level, duty-exclusive import unit values did not decline meaningfully in response to higher tariffs, implying near-complete pass-through to prices inclusive of duties. An average effective tariff increase of about 8 percentage points over the period was associated with an import volume decline of roughly 3.6 percent, the authors report (IMF PDF).

At the aggregate product level, however, duty-exclusive import prices fell significantly as tariffs rose. The researchers attribute this decline primarily to within-product reallocation: stronger entry of lower-priced varieties and exit of higher-priced ones in products facing larger tariff increases. Decomposition exercises indicate that extensive-margin adjustments (entry and exit) accounted for a substantial share of the price effect. Estimates of variety "appeal"—a measure capturing quality and preference factors within a CES demand framework, calculated from pre-tariff 2023-24 data—show that part of the shift was toward lower-appeal, lower-quality sources. Once quality is accounted for, the apparent decline in pre-tariff prices is reduced, and tariffs raise quality-adjusted prices, though by less than the full tariff amount (IMF Working Paper).

The same pattern of reallocation toward lower-quality varieties appeared in the authors’ parallel analysis of the 2018-19 US-China tariff episode. The paper notes that lower-quality imported intermediate inputs could reduce firm productivity, while consumers may experience diminished product quality even when average (unadjusted) import prices appear lower. The views expressed are those of the authors and do not necessarily represent those of the IMF, its Executive Board or management.

Coverage of the findings has appeared in outlets including Business Today, which reported that higher 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" (Business Today), and India Shipping News, which highlighted the reshaping of US imports without meaningful reductions in export prices (India Shipping News). Former IMF Deputy Managing Director Gita Gopinath also drew attention to the paper on social media, noting the implications for US consumers paying higher tariff-inclusive prices for lower-quality goods, as reported by Hindustan Times (Hindustan Times).

The analysis relies on statutory tariffs from the WTO-IMF Tariff Tracker as instruments for effective rates to address potential endogeneity. It underscores that tariff incidence operated more through changes in the import basket and sourcing patterns than through exporter price reductions.

Why this is uncovered

The IMF Working Paper and its core findings received coverage in Indian business and trade specialist outlets such as Business Today and India Shipping News, plus a Hindustan Times piece on Gita Gopinath’s amplification, but showed limited pickup in major global wire services or mainstream Western newspapers in the days after release.