The Federal Reserve Board published a research note examining why the average US tariff rate implied by announced policy changes exceeds the rate implied by duties actually paid by importers. It defines this disparity as the "tariff rate gap" between the effective tariff rate (ETR) and the realized effective tariff rate (RETR), and finds the gap was substantially larger in the 2025 tariff episode than in 2018–2019 over comparable horizons. Using a decomposition that splits the gap into changes in import composition (substitution, including frontloading and other shifts toward lower-tariff products and source countries) and product-country "rate discrepancies" (differences between announced and applied rates), the note estimates that by December 2025 the ETR reached 14.7 percent, up 12.4 percentage points versus 2024, and the tariff rate gap was 5.43 percentage points, about 44 percent of the 12.37 percentage point ETR increase. By contrast, by December 2018 the ETR increase was 1.93 percentage points relative to 2017 and the gap was 0.44 percentage points, about 22 percent of the increase. The analysis attributes the larger 2025 gap to faster substitution and larger product-country discrepancies, including shipment timing effects (tariffs applying based on ship dates), changes in USMCA exemption compliance for Canada and Mexico, and potential use of free trade zones or bonded warehouses. The note expects some drivers to be temporary (such as frontloading and shipment timing) while others may be more persistent, and anticipates the gap could fall somewhat if tariffs remain in place before rising again as longer-run substitution becomes more permanent. It also points to companion work that further decomposes the gap by factors such as USMCA compliance, free trade zones, and shipment timing, and documents variation across countries and sectors.
Federal Reserve Board 2026-04-08
Federal Reserve Board research decomposes the US tariff rate gap and finds it much larger in the 2025 tariff hikes
The Federal Reserve Board published research on the “tariff rate gap” between the effective tariff rate implied by announced U.S. policy changes and the realized rate based on duties actually paid, finding the gap was substantially larger in the 2025 tariff episode than in 2018–2019. The note estimates that by December 2025 the effective tariff rate reached 14.7 percent, with a 5.43 percentage point gap driven by faster import substitution and larger product-country rate discrepancies, including shipment timing and changes in United States-Mexico-Canada Agreement exemption compliance.