Prominent economist and former deputy managing director of the International Monetary Fund (IMF), Gita Gopinathhas drawn attention to a new research paper, saying it delivers bad news for US consumers bearing the brunt of Trump’s tariffs.
Market Context
In a post on X, she shared an IMF working paper that shows that tariffs have led to a decline in the quality of goods the US imports. She said tariffs did little to lower export prices to the US and instead buyers shifted toward cheaper, lower-quality imports. It means Americans are now paying higher tariff-inclusive prices while also getting poorer quality products.
The IMF working paper she referenced to has been authored by researchers JaeBin Ahn, Lorenzo Rotunno and Michele Ruta. It looks closely at how US tariff hikes in 2025 affected import prices and the findings raise fresh questions about who really pays the price.
The study examined detailed monthly US Census data on imports and tariffs from February to December 2025. At the most detailed level, looking at specific products from specific countries, the researchers found that exporters’ prices barely moved at all in response to tariffs. This means the tariffs were passed on in full to the price paid at the US border. When tariffs went up by 8 percentage points on average between February and December 2025, imports fell by about 3.6 percent, but exporters didn’t cut their prices to make their goods more competitive.
Even though individual sellers didn’t lower prices, the researchers found that broader, product-level prices did fall as tariffs rose. Which means that, American buyers were switching suppliers. Products facing bigger tariff hikes saw more foreign sellers exit the US market, mainly higher-priced ones while new, cheaper sellers entered. The study found roughly 65 percent of this price decline came from this “entry and exit” effect, rather than existing sellers changing their prices.
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The most important and worrying part of the study is that, the researchers suspected that some of these “cheaper” new sellers might not just be cheaper because they’re more efficient. They might be cheaper because they offer lower quality goods.
They found that once quality differences were accounted for, a large share of the price decline disappeared. For the 2025 tariffs, roughly half of the drop in product prices was linked to a shift toward lower-appeal, lower-quality suppliers, not genuine savings from more efficient sourcing.
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Once quality is factored in, tariffs did raise prices, the study found that when import prices include tariffs and quality differences are properly accounted for, tariffs increased final prices, though by less than the full amount of the tariff itself.
Without accounting for quality, it had looked like tariffs barely raised final prices at all but the researchers say that finding was misleading once quality-adjustment was applied.
The researchers say this points to a hidden cost of tariffs: consumers may be getting inputs and goods of lower quality, which could also hurt business productivity if companies are forced to use lower-quality imported materials in what they produce.
To check if this was a fluke of the 2025 tariffs specifically, the researchers ran the exact same analysis on the 2018-19 US-China trade war. They found the same pattern: tariffs pushed buyers toward cheaper, lower-quality suppliers and once you adjust for quality, the real cost to consumers was higher than it first appeared.
Source
To test this, they built a clever measurement called “appeal,” basically a score for how much buyers value a specific seller’s version of a product, beyond just the price. A seller with high “appeal” can charge more and people still buy from them (because of better quality, brand trust, reliability, etc). They calculated this appeal score using data from before the tariffs (2023-2024), so it wouldn’t be distorted by the tariffs themselves.
