How Harvard Researchers Accidentally Doubled the Tariff Effect
When Federal Reserve Chair Jerome Powell cited rising import prices as evidence that tariffs are driving inflation, he was almost certainly relying on a new Harvard Business School study. The paper’s headline finding: imported goods prices rose “roughly twice as much” as domestic ones—a 1.8x ratio that suggests tariffs are having a dramatic, differential impact on traded goods.
There’s just one problem: that finding depends entirely on two questionable methodological choices that happen to maximize the measured effect. Make equally defensible alternative choices, and the gap shrinks by up to around 40 percent.
The study, “Tracking the Short-Run Price Impact of U.S. Tariffs,” comes from a team led by Harvard Business School’s Alberto Cavallo, along with Paola Llamas of Northwestern and Franco Vazquez of Universidad de San Andrés. It’s been making the rounds in Washington, and for good reason—it’s based on novel real-time price data and tackles an urgent policy question. But the paper is flawed in ways that undermine confidence in its findings.
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