Trade Deflection: The Spillover Effects of U.S. Tariffs on Import Prices in Bystander Countries

RePEc Short ID: ppi197
ORCID iD: 0000-0003-2744-5918

Grouws, Sofie; Jeon, Sharon; Lo Forte, Giulia; Pierce, Justin R.

doi:10.17016/IFDP.2026.1449

Working Paper

Trade Deflection: The Spillover Effects of U.S. Tariffs on Import Prices in Bystander Countries

Abstract: Even as tariffs have reduced U.S. imports from China, Chinese exports have continued to expand globally. Yet despite the relevance of this redirected trade for firms and consumers, globally, there is little systematic evidence on how import prices have responded in "bystander" countries. We show that Chinese products targeted by U.S. tariffs experience persistent declines in import prices in bystander countries, and that these declines are largest in emerging markets. In exploring mechanisms for observed price declines, we show that they are larger for products that China exported heavily to the U.S. before the tariffs, in concentrated import markets, and in countries that are geopolitically closer to China. These findings are novel given the lack of price adjustment for Chinese imports documented in the U.S., the country that imposed the tariffs.

JEL Classification: F14; F16; F62;

https://doi.org/10.17016/IFDP.2026.1449