U.S. Import Price Dynamics Following the 2025 Tariffs

The tariff increases implemented in early 2025 brought renewed attention to the dynamics of U.S. import prices. Tariffs influence import prices by affecting both the prices charged by foreign suppliers and the composition of countries from which the United States imports.

In this blog post, we document how import prices charged by foreign suppliers (which exclude tariffs) evolved in 2025 after these tariff changes and identify the mechanisms that shaped these price adjustments. Our findings suggest that while foreign suppliers facing reduced demand did lower prices they charged, this was offset by the effect of U.S. firms shifting purchases toward alternative suppliers with higher underlying price levels and faster rates of price growth.

Tariffs and Import Prices

When tariffs are imposed on imports of a particular good from a particular country, demand for those imports falls. Foreign exporters that wish to remain competitive in the U.S. market may respond by lowering their export prices, placing downward pressure on the prices they charge before tariffs are applied. This adjustment is often described as a terms-of-trade effect.

Tariffs also lead U.S. firms to shift their purchases toward alternative suppliers. This adjustment shapes the aggregate import price index through two distinct channels. First, demand may reallocate toward countries with higher underlying price levels than the original suppliers’. Second, this shift in demand itself can place upward pressure on the prices charged by the countries experiencing stronger demand. Through these mechanisms, the import-source-reallocation effect can increase the overall cost of the import basket.

We examined the historical importance of this source reallocation channel for U.S. import prices in our earlier blog post and related working paper.See Fernando Leibovici and Dawn Chinagorom-Abiakalam, “How Changes in Trade Partners Have Affected U.S. Import Prices,” St. Louis Fed On the Economy, Aug. 21, 2025. Also see Dawn Chinagorom-Abiakalam and Fernando Leibovici, “Import Source Reallocation and Aggregate Price Dynamics in the United States,” Federal Reserve Bank of St. Louis Working Paper 2025-018A, August 2025. Our analysis documented that shifts in the supplier mix, rather than just price adjustments by existing partners, have played a central role in shaping U.S. import price dynamics over previous decades.

In this blog post, we quantify the relative importance of these two forces—terms-of-trade adjustments and import source reallocation—in shaping the dynamics of U.S. import prices following the 2025 tariff changes. By decomposing the aggregate import price index into the contribution from price adjustments within country-product pairs and the contribution from shifting sourcing patterns, we provide a clearer view of how tariff policy changes in early 2025 affected import prices in the months that followed.

Tariffs, Sourcing Patterns and Recent Movements in Import Prices

The 2025 changes in tariff policy, shifts in sourcing patterns and movements in U.S. import prices can be seen in the figures below.

The first figure shows the sharp rise in effective U.S. tariff rates that began in early 2025. After several years of relative stability, tariffs increased quickly and across a wide range of goods, pushing the average effective tariff rate to levels noticeably higher than in prior years. This represents a clear break in trend, as the figure highlights with the spike in 2025.

The second figure shows how the composition of U.S. import sourcing changed during this period. For most of 2023 and 2024, sourcing shares across countries changed little. Beginning in 2025, however, the tariff increases coincided with noticeable shifts. Imports from China declined, while imports from several other Asian economies, as well as from Canada and Mexico, rose. The share of imports from the European Union increased briefly before beginning to fall. These movements are likely to reflect firms’ responses to the new cost environment, as higher tariffs reduced the attractiveness of some trade partners and encouraged substitution toward others.

The third figure displays aggregate U.S. import price movements over this period using both the official import price index from the U.S. Bureau of Labor Statistics (BLS) and a series we constructed from U.S. Census Bureau monthly import data.For more information on our import price index, see our working paper cited in Endnote 1. The paper provides a detailed description of how price adjustments within suppliers and changes in import sourcing shares are combined to construct the components of the import price index. (These indexes reflect the prices charged by suppliers and thus exclude tariffs.) The official index remains broadly stable following the tariff changes, while our measure shows a modest, temporary increase in import prices. Despite these differences, both aggregate import price indexes exhibit limited overall movement. However, this limited movement masks sharper underlying adjustments operating through offsetting mechanisms: Foreign suppliers lowered the prices they charged the United States in response to weaker demand, which placed downward pressure on the aggregate import price index, while U.S. firms shifted sourcing toward higher-priced suppliers, which exerted upward pressure on the aggregate index. We quantify the importance of these mechanisms in the next section.

Decomposing Import Price Changes: Terms of Trade vs. Source Reallocation

As noted above, the aggregate import price index reflects the combined influence of individual pricing decisions and shifting sourcing patterns. To disentangle these forces, we decomposed changes in the import price index since 2020 into two distinct components:

• Within product-source price changes: This component measures average price changes within products and source countries while holding 2024 import shares constant.
• Sourcing reallocation effects: This component captures the effect of changes in the composition of the import basket, reflecting how sourcing shifts toward countries with different underlying price levels or divergent rates of price growth.

Our analysis uses monthly U.S. import data reporting the value and quantity of imports by product category and source country at the 10-digit Harmonized System level. We constructed unit values, defined as import value divided by quantity, as a proxy for prices. We tracked both the evolution of prices within supplier-product pairs and the changing shares of each supplier in the U.S. import basket. The decomposition extends the approach we developed in our 2025 working paper, which provides a detailed description of how prices for continuing suppliers and changes in sourcing shares are combined to construct the components of the import price index.

The figure below shows the cumulative contribution of these two components since January 2024. We observe a significant change in the contribution of each component following the 2025 tariff increases. Prices charged by foreign suppliers declined in the months after the tariff changes, consistent with a terms-of-trade adjustment as suppliers faced reduced demand from the United States. At the same time, the sourcing component caused import prices to increase as U.S. firms shifted purchases toward countries with higher rates of price growth and price levels.Our analysis indicates that the primary driver of this increase was the reallocation of import shares toward country-product pairs with higher rates of price growth, rather than toward those with higher initial price levels. This reallocation effect offset the decline in foreign export prices.

Cross-Country Patterns in Pricing and Sourcing Adjustments

The decomposition reflects the combined behavior of many individual trade partners. To understand what drives these aggregate patterns, we examined how pricing and sourcing adjustments varied across major trade partners. This country-level perspective clarifies which exporters reduced their prices after the tariff changes and which suppliers gained or lost importance in the U.S. market.

The next figure decomposes the contribution of within product-source price changes to aggregate import price growth across major trading partners, with the country-level lines summing to the total within-component contribution to the aggregate import price index. Following the 2025 tariff increases, exporters in China accounted for a large downward contribution, reflecting sustained reductions in the prices charged to the United States through the first half of the year. Exporters in the European Union also contributed noticeably to downward price pressure, particularly during the period when tariff-induced demand effects were strongest. In contrast, price adjustments among exporters in Canada and Mexico and those in the Association of Southeast Asian Nations (ASEAN) were more limited, resulting in relatively small contributions.

The following figure shows how shifts in the composition of U.S. imports across major trading partners contributed to movements in the overall import price index. Each line reflects how changes in a country’s share of U.S. imports affected aggregate import prices, with the country level contributions summing to the total sourcing effect. After the 2025 tariff increases, the European Union and China accounted for the largest positive contributions. To illustrate, China has tended to supply goods with relatively low price levels and modest price growth. When the U.S. reduced its purchases from China following the tariff increases, those import shares were reallocated toward suppliers with higher price levels and stronger price growth. This reallocation raised the overall import price index through the sourcing channel. Contributions from ASEAN, Canada and Mexico, and the rest of the world were smaller but generally positive, reflecting a broader shift of sourcing toward relatively higher cost suppliers with faster price growth.

Concluding Remarks

Taken together, our results show that the 2025 tariff increases affected U.S. import prices through two distinct but interconnected forces. Foreign suppliers facing reduced demand lowered the prices they charged. At the same time, U.S. firms shifted their purchases toward alternative suppliers that tended to have higher underlying price levels and faster rates of price growth. These sourcing shifts more than offset the decline in prices within supplier-product pairs, resulting in an overall increase in the import price index. Understanding how these channels operate is essential for interpreting the effects of trade policy on price dynamics.

Notes

1. See Fernando Leibovici and Dawn Chinagorom-Abiakalam, “How Changes in Trade Partners Have Affected U.S. Import Prices,” St. Louis Fed On the Economy, Aug. 21, 2025. Also see Dawn Chinagorom-Abiakalam and Fernando Leibovici, “Import Source Reallocation and Aggregate Price Dynamics in the United States,” Federal Reserve Bank of St. Louis Working Paper 2025-018A, August 2025.
2. For more information on our import price index, see our working paper cited in Endnote 1. The paper provides a detailed description of how price adjustments within country-product pairs and changes in import sourcing shares are combined to construct the components of the import price index.
3. Our analysis indicates that the primary driver of this increase was the reallocation of import shares toward country-product pairs with higher rates of price growth, rather than toward those with higher initial price levels.