Marco Garofalo and Thomas Prayer
The US administration raised US import tariffs in April, reigniting commerce tensions. This sparked considerations about cheaper exports being diverted to different markets, probably reducing world costs. Utilizing detailed product-level knowledge, we construct a novel well timed indicator to constantly observe commerce costs throughout international locations. Chinese language export costs have risen lower than world ones since April and stay under March ranges. Costs of different Asian exporters, Canada and Mexico have additionally grown extra slowly than world costs, however to a extra restricted extent, whereas export costs for Europe grew quicker than world patterns. UK import costs mirror these in Europe, whereas US import costs (excluding tariffs) have declined since March 2025. Our outcomes and future updates are publicly out there on-line.
US import tariffs and commerce costs
Originally of 2025, the US administration imposed new tariffs on Canada, China and Mexico. Subsequently, it rolled in broad-based tariffs on all US buying and selling companions in April. New commerce tensions erupted, with disputes nonetheless ongoing.
As was the case through the US-China commerce tensions in 2018–19 (Amiti et al (2019), (2020); Cavallo et al (2021); Fajgelbaum et al (2019); Flaaen et al (2020); Ma et al (2021), many at the moment are monitoring what is occurring to the US financial system and costs because of the 2025 tariffs (Auray et al (2025); Barbiero and Stein (2025); Baslandze et al (2025); Cavallo et al (2025); Minton and Somale (2025); and the finances lab (2025).
However US tariffs, particularly on China given its outsized position in world commerce, may affect costs outdoors the US by commerce reallocation (Fajgelbaum and Khandelwal (2022); Fajgelbaum et al (2024)). A number of commentators and policymakers have voiced considerations that US tariffs may result in merchandise destined to the US market to be diverted to different locations, growing world competitors and thus reducing costs.
Though monitoring potential deflationary pressures from commerce diversion is of first-order significance for policymakers from central banks and competitors businesses, tariff spillovers on third international locations’ costs are surprisingly underexplored. To handle this hole, we offer a easy but highly effective new device to watch the evolution of costs of traded items in a well timed and granular means.
A mannequin for all seasons
Our strategy boils all the way down to setting up an index averaging costs of traded items globally and individually for every nation, after stripping out variations solely because of the composition of importers, exporters and merchandise in commerce knowledge.
If you are able to do with out the econometrics behind this, skip to the following part, the place we focus on our outcomes.
We estimate the next empirical regression mannequin impressed by Bonadio et al (2020):
ycpjt = α + δcpj + δt + ucpjt (1)
The place y is the unit worth (worth over amount) excluding tariffs reported by importer nation c of product p and exporter nation j in month t. We embrace a continuing time period α and δcpj importer product exporter fastened results and the error time period u. Commonplace errors are clustered at cpj stage to plot 95% confidence intervals within the charts under.
Our objects of curiosity are the estimated coefficients on the time fastened results δt, which successfully common throughout unit costs, after stripping out compositional results with the cpj fastened results. To interpret our estimated time fastened results, we drop the one equivalent to March 2025, in order that in impact we assemble an index of the evolution of unit costs towards that benchmark month. Which means our mannequin can inform us what the change in costs for the reason that introduction of broad-based US tariffs in April has been; nevertheless, it can’t inform us why this modification has occurred, eg whether or not it was attributable to these tariffs.
We estimate this mannequin utilizing six-digit commerce knowledge in US {dollars} from UN Comtrade, after excluding oil merchandise and different particular classes. We use knowledge on imports from this supply for a number of causes: (i) nationwide accounts often report worth deflators with a lag and at a quarterly frequency, whereas our measures and updates are month-to-month – and thus extra well timed – and constantly estimated throughout a big pattern of nations; (ii) import knowledge are reported on a Price, Insurance coverage and Freight foundation, which is extra complete that the Free On Board foundation used for export knowledge; and (iii) counting on import knowledge signifies that we will monitor a rustic’s export costs by way of the import costs reported by its commerce companions, deven in conditions during which the nation is but to publish official export statistics.
Our pattern contains 131 importer international locations, 5,924 merchandise and 245 exporter international locations for all months since January 2022, the beginning date of the brand new HS product classification, which we observe with a purpose to establish the identical merchandise constantly over time. As of the time of writing, our newest knowledge level is August 2025 or earlier within the 12 months for many importers, though knowledge for September 2025 is offered for some international locations – like Brazil – whereas the most recent out there knowledge level for others comes a lot earlier (eg for France it’s December 2024). Lastly, we drop US imports, as we’re desirous about monitoring what is occurring to costs outdoors the US. Nonetheless, once we embrace the US, our outcomes are unchanged.
Along with being clear, well timed and granular, our framework can be very versatile and simple to increase. Are you curious about meals costs? Intermediate merchandise? Or, do you maybe need to concentrate on sure international locations? Merely add an interplay of your dimension of curiosity and the time fastened results, and you’re good to go.
We, for instance, are desirous about understanding whether or not the worldwide image from equation (1) may disguise country-specific heterogeneity. We subsequently estimate the next equation:
ycpjt = α + δcpj + δt + Σjβjnationjδt + ucpjt (2)
Right here, we add a brand new variable which interacts our time fastened results with a dummy for particular person international locations of curiosity, equal to 1 if that nation is the exporter in a transaction. We do that, as an alternative of, for instance, distinguishing between varieties which might be and usually are not affected by US tariffs, as a result of the scope of US tariffs imposed or threatened through the course of 2025 was so broad that greater than 90% of our observations contain an exporter and a product that topic to new US tariffs. The management group for such an train would subsequently be extraordinarily restricted, notably given our fastened results.
Monitoring export costs
Chart 1 plots the estimated fastened results from (1): the sample of the corresponding blue line means that world import costs – and equivalently world export costs, provided that one nation’s imports are one other nation’s exports – are up about 5% by August towards March 2025, that’s the month earlier than broad-based US tariffs have been launched.
We are able to use (2) to grasp what is occurring to Chinese language export costs. Since March 2025, Chinese language export costs have grown considerably extra slowly than World costs, as one can see by evaluating the crimson and blue traces, and stay under March ranges. As a robustness examine for our strategy, we confirmed this sample in official Chinese language export costs knowledge.
One essential caveat concerning interpretation: our mannequin goals at monitoring slightly than offering causal proof. We’re simply slicing the info in a well timed means, in order that we will monitor whether or not the outlook for commerce costs is evolving extra in step with one speculation or one other. For instance, our leads to Chart 1 could be in keeping with early indicators of deflationary pressures from commerce diversion.
After all, different components may be at play, like seasonal forces or the consequences of actions in trade charges. These are, nevertheless, unlikely to clarify the divergence between world costs and Chinese language export costs. On the previous, each the blue and crimson traces in Chart 1 incorporate potential seasonality from the Chinese language knowledge, so one may count on their comparability to be unaffected by seasonal components. On the latter, the overwhelming majority of Chinese language exports are invoiced in US {dollars}, as is the case for many international locations, and the Chinese language Yuan’s appreciation towards the US greenback since 2025 has been comparatively small, though there have been stronger appreciations for different currencies such because the Euro. Thus, merely evaluating the world and Chinese language traces may to some extent over or understate the deflationary results of commerce diversions from US tariffs.
Chart 1: Chinese language export costs have grown extra slowly than world ones since March 2025
Observe: Confidence intervals at 95%.
Sources: UN Comtrade and authors’ calculations.
What is occurring for different exporters? As proven by the totally different panels A, B and C of Chart 2, world export costs have outpaced these of different Asian exporters, Canada and Mexico. Nonetheless, these international locations’ progress remains to be quicker than that of Chinese language costs, as proven by the truth that the crimson line in panel A of Chart 2 is under all the opposite traces over the second half of 2025. In distinction, the export costs of choose European international locations (panel D) appear to have been broadly in step with, or grown stronger than, our world benchmark. All in all, this proof is in keeping with deflationary pressures from commerce diversion extending to international locations apart from China, for instance economies particularly focused by US tariffs resembling Canada and Mexico or different export-focused Asian economies.
Chart 2: Export costs of Asian (European) exporters grew slower (quicker) than world ones since March 2025
Panel A: Canada, China and Mexico
Panel B: India, Thailand and Vietnam
Panel C: Japan, South Korea and Taiwan
Panel D: France, Germany and Italy
Observe: Confidence intervals at 95%.
Sources: UN Comtrade and authors’ calculations.
Monitoring import costs
Lastly, we will flip to the opposite aspect of the coin: do these new patterns in export costs translate into adjustments to international locations’ import costs? That is notably related because the latter feed into the prices of imported items that buyers purchase and inputs that companies use of their manufacturing.
Chart 3 exhibits that UK import costs (the orange line) seem to have adopted the worldwide pattern (the darkish blue line). The UK’s different European friends, resembling Germany and Italy, additionally appear in step with the world benchmark, whereas US import costs (excluding tariffs) have declined since March 2025.
Chart 3: UK import costs mirror Europe, whereas US import costs (excluding tariffs) have declined since March 2025
Notes: Confidence intervals at 95%. Germany modified commerce reporting threshold in 2025, so we don’t plot a line earlier than that to keep up consistency within the sequence. France’s newest reporting month for its imports is December 2024, so we exclude it.
Sources: UN Comtrade and authors’ calculations.
Conclusion
We hope that our novel empirical mannequin and publicly out there knowledge can present policymakers and different stakeholders with well timed insights within the close to future, serving to them calibrate their coverage interventions, and perceive whether or not the outlook is evolving in step with the narrative and views of their communications.
To this finish, our measures and outcomes are publicly out there, and can maintain updating them on-line.
Marco Garofalo works within the Financial institution’s World Evaluation Division and is a PhD scholar at College of Oxford and Thomas Prayer is Affiliate at Centre for Financial Efficiency at London Faculty of Economics and Political Science.
If you wish to get in contact, please electronic mail us at bankunderground@bankofengland.co.uk or depart a remark under.
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