Study Reveals U.S. Consumers Paid More Than the Tariff Cost on European Wines

A new study by faculty from Duke’s Department of Economics in the Trinity College of Arts & Sciences reveals that American consumers ultimately paid more than the tariff cost on European wines during a 2019–21 trade dispute. The research highlights how tariffs ripple through complex supply chains and can raise prices at the checkout counter for a wide variety of products above and beyond the initial levy, insights that are of particular interest given the increased use of tariffs by the U.S. government during 2025. 

The working paper, “Tariff Pass-Through Along the Supply Chain: Evidence from Tariffs on European Wines,” analyzes detailed data, including confidential transaction prices between foreign suppliers and U.S. distributors from one of the largest U.S. wine importers. By tracking prices throughout the supply chain, from producers all the way to retailers, the research team mapped how U.S. retail prices for European wines rose even higher than the direct tariff costs imposed during the trade dispute. 

“Our findings contain both good and bad news for the American consumer. The good news is that consumer prices for imported wines rose by less than the percentage increase in the tariff. The bad news is that our estimates suggest consumer cost increases exceeded the tariff revenue received by the U.S. government,” said Duke Associate Professor of Economics Felix Tintelnot.

Key findings show:

• Foreign producers absorbed some costs. Prices at the border decreased by approximately 5.2% after the U.S. imposed a 25% tariff on wines with 14% alcohol content or below, as European producers adjusted their prices to remain competitive.
• Importers faced squeezed margins. U.S. importers raised the prices they charged distributors by about 5.4%, which meant they absorbed a portion of the tariff as the wine made its way to consumers.
• Retail markups amplified the tariff effect. By the time bottles reached U.S. consumers, retail prices had risen by 6.9%. While this means the pass-through of the 25% tariff is incomplete, markups along the way meant American shoppers paid around $1.59 more per bottle in one example, exceeding the actual $1.19 tariff paid per bottle at the border.

“Once you consider a distribution chain with multiple levels of markups, it is possible (and often likely) for the consumer to fully pay for the cost of the tariffs in dollar terms even when the foreign supplier partially absorbs the tariff by lowering its price,” the authors write in the paper. They also emphasize the timing of the effects. “In the case of these wine tariffs, consumer prices do not fully respond until nearly a year after tariffs were applied, with significant positive price impacts lasting well beyond when the tariffs expired.”

The study also uncovered surprising industry responses, with the authors finding that some European producers engaged in “tariff engineering” by slightly raising the alcohol content listed on wine labels to push products above the 14% threshold, which exempted them from the higher duties. 

The researchers note that the lessons extend far beyond wine. Most consumer goods in the U.S. pass through multi-tiered supply chains with built-in markups. The findings suggest that future tariffs, such as those imposed in 2025, are likely to raise consumer costs by more than the tariff revenue collected and extend beyond the expiration of the tariffs.

Based on estimates from the Bureau of Economic Analysis, the average weighted gross markup across all personal consumption expenditure goods is a little over 100 percent between producer and purchaser prices,” the paper notes. “If this gross markup rate in the domestic distribution sector prevails and foreigners absorb little of the tariffs, consumer prices could rise — in dollar terms — by substantially more than the tariffs paid.”

Tintelnot, Professor Daniel Yi Xu and Ph.D candidate Nicolás Urdaneta were joined by Aaron Flaaen from the U.S. Federal Reserve and Ali Hortaçsu from the University of Chicago in conducting the research.