Mary Amiti, Oleg Itskhoki, and David E. Weinstein

Inflation all over the world elevated dramatically with the reopening of economies following COVID-19. After reaching a peak of 11 p.c within the second quarter of 2021, world commerce costs dropped by greater than 5 share factors by the center of 2023. U.S. import costs adopted an analogous sample, albeit with a decrease peak and a deeper trough. In a new research, we examine what drove these worth actions by utilizing info on the costs charged for merchandise shipped from fifty-two exporters to fifty-two importers, comprising greater than twenty-five million commerce flows. We uncover a number of patterns within the knowledge: (i) From 2021:Q1 to 2022:Q2, nearly the entire development in U.S. import costs might be attributed to world components, that’s, traits current in most international locations; (ii) on the finish of 2022, U.S. import worth inflation began to be pushed by U.S. demand components; (iii) in 2023, international suppliers to the U.S. market caught up with demand and account for the decline in import worth inflation, with a big position performed by China. 

Methodology 

We use bilateral commerce knowledge for all shipments of disaggregated merchandise from an exporting nation to an importing nation for fifty-two international locations, which make up greater than 90 p.c of U.S. imports. We divided the worth of every HS10-country commentary by the amount to type the unit worth, which is our measure of the worth. We estimate the typical change in log costs for every exporter and every importer for every product in every quarter, all relative to the worldwide median worth. We check with the worldwide median because the “world frequent shock,” the exporter common worth change much less the median change because the “idiosyncratic provide shock,” and the importer common worth change much less the median one because the “idiosyncratic demand shock.” Our forthcoming publication within the American Financial Affiliation (AEA) Papers and Proceedings gives extra particulars of this system. Under, we summarize our findings, and for this publish, we lengthen the pattern interval to incorporate 2023. 

U.S. Mixture Import Costs 

The chart beneath plots the decomposition of the modifications in combination U.S. import costs and exhibits the sources of the rise and fall of combination import worth inflation, similar to the black line. We additionally plot every of the three elements (frequent, idiosyncratic U.S. demand, and idiosyncratic export provide worth shocks), the place we additional break up the export provide worth shock into the ingredient pushed by China (darkish inexperienced) and different exporters to the U.S. (mild inexperienced). The sum of the coloured bars equals the change within the combination import costs.  

International Components Drive Progress in U.S. Import Costs after COVID-19 till Mid-2022 

The chart exhibits that import worth inflation was pushed primarily by the worldwide frequent shock (blue bars) till the second half of 2022. Import worth inflation rose to eight p.c within the second half of 2021 and fell to -6 p.c by the third quarter of 2023. The worldwide frequent issue (blue bars) performed a dominant position within the aftermath of COVID-19 when all international locations struggled to re-open their economies. Nevertheless, by the top of 2022, the worldwide frequent issue stopped affecting import worth inflation. As an alternative, idiosyncratic U.S. demand and later worth reductions by the key exporters to the U.S. performed the dominant position in worth fluctuations.  

Specifically, idiosyncratically robust demand within the U.S. maintained excessive import inflation charges within the second half of 2022. Nevertheless, this demand impact was short-lived and fell to shut to zero at the beginning of 2023. These findings counsel that almost all import worth inflation was frequent to all international locations till the center of 2022 and, due to this fact, can’t be defined by distinctive U.S. insurance policies or insurance policies peculiar to our buying and selling companions. In different phrases, COVID-19 was a worldwide shock that affected import costs in all international locations roughly equally. 

As provide chain pressures have eased, import costs have fallen, and we see that idiosyncratic provide shocks have been accountable for the worth declines in 2023. Maybe in response to the excessive import costs that emerged after COVID-19, the U.S.’s main suppliers ramped up manufacturing and dropped costs. The darkish inexperienced bars point out that a lot of the drop in import costs is because of China, whose exporters dropped costs by greater than these in different international locations. These patterns counsel that the U.S. import worth inflation was not as a result of a poor selection of buying and selling companions.

Within the wake of COVID-19, import costs rose within the U.S. as a result of they rose in all places and never due to idiosyncratic U.S. demand or choices made by our main import suppliers. When U.S. import costs fell in 2023, it was principally the product of huge worth drops by China and our different main import suppliers. Among the decline within the U.S. import costs in 2023 could also be because of the relative power of the U.S. greenback, however we discover little correlation between trade-weighted USD and import worth inflation over the remainder of the pattern interval. 

Mary Amiti is the pinnacle of Labor and Product Market Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Oleg Itskhoki is a professor of economics on the College of California, Los Angeles.

David E. Weinstein is the Carl S. Shoup Professor of the Japanese Financial system at Columbia College.

Methods to cite this publish:
Mary Amiti, Oleg Itskhoki, and David E. Weinstein, “International Provide Chains and U.S. Import Worth Inflation,” Federal Reserve Financial institution of New York Liberty Road Economics, March 4, 2024, https://libertystreeteconomics.newyorkfed.org/2024/03/global-supply-chains-and-u-s-import-price-inflation/.