World Economy· 2026Q1
Trade Policy Shocks and Consumer Prices
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- Q1SCImago
- 2026year
Short summary
A 1% increase in import prices leads to a 0.2%-0.4% rise in consumer prices, with the overall effect amplified by domestic price responses.
AI-generated from the title and abstract; the full text is not read.
Key points
- Direct pass-through of import price shocks to consumer prices is incomplete (0.2%-0.4% for a 1% import price increase).
- Overall pass-through is significantly larger when accounting for domestic price responses.
- Pass-through is higher for lower-income consumers and in more competitive, less remote markets.
- A model incorporating variable markups and consumer heterogeneity explains these differential effects via outlet and expenditure channels.
AI-generated from the title and abstract; the full text is not read.
Abstract
ABSTRACT How do trade policy shocks affect consumer prices? By constructing a novel dataset with both US import prices and barcode‐level consumer prices, I examine the pass‐through of import prices into consumer prices and its heterogeneity across consumers. I find that the pass‐through is incomplete via the direct effect: a 1% increase in import prices leads to an around 0.2%–0.4% increase in consumer prices. However, after accounting for the response of domestic prices, the overall pass‐through is significantly larger. In addition, the pass‐through is higher for consumers with lower income and in more competitive, and less remote markets. To explain these findings, I model the retail margin with variable markups and extend it to allow for consumer price heterogeneity. I show that the differential pass‐through arises from the outlet and the expenditure channel. Lastly, a quantitative exercise estimates the increases in consumer prices during the US‐China trade war.
The authors' abstract, as published at the source. World Economy, 2026 · DOI ↗
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General Economics, Econometrics and FinanceEconomics, Econometrics and Finance