Reconciling Aggregate And Firm-Level Tariff Pass-Through: Evidence From The 2018–2019 Us Tariffs On China

Research finds complete tariff pass-through at the product level during the 2018-2019 US-China trade war. Using firm-level customs data, we find a significant decrease in Chinese firms’ ex-tariff prices in response to US tariffs, which indicates incomplete pass-through. A one-percentage-point tariff increase reduces prices by 0.172 percentage points for the highest-priced 25% of exporters while having negligible effects on firms with below-median prices. US tariffs increase Chinese exporters’ probability of exiting the US market, with larger effects for lower-priced firms. The product-level complete pass-through results from two offsetting forces—price reduction by incumbents and market exits by lower-priced firms.