Did Foreigners Pay America's Tariffs? Quantity Discounts, Scale Economies and Incomplete Pass-Through
February 2026
Working Paper Number:
CES-26-17
Abstract
Transaction-level quantity discounts are a pervasive feature of US trade, shaping both price variation and tariff incidence. Using administrative microdata, we show that these discounts reflect transaction-level scale economies rather than market power. Accounting for these micro-level economies resolves a key puzzle: while observed import prices rose one-for-one with 2018-2019 US tariffs, we show this was driven by the loss of scale economies as transaction sizes collapsed. Controlling for this scale effect, the strategic pass-through of tariffs to scale-free prices falls to 60 percent, implying foreign exporters absorbed a significant share of the burden through reduced markups.
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market,
macroeconomic,
export,
commodity,
price,
monopolistic,
tariff,
shipment,
exporter,
retailer,
pricing,
inflation,
wholesale,
federal,
rate,
trading,
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purchase
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Ordinary Least Squares,
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Herfindahl Hirschman Index,
Commodity Flow Survey,
Longitudinal Firm Trade Transactions Database,
Federal Statistical Research Data Center,
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