Why Trump's tariffs may hit low-income households hardest

President Donald Trump has argued that his "America First" trade policy is intended to balance what he feels is an unfair global trade scheme that hurts U.S. workers.

As things stand, there's a 10% tariff on almost everything the U.S. imports, though there are some exceptions. On goods from China, there's a 30% tariff rate. Last year, China was the third largest source of imported goods to the U.S.

Consumer prices went up 2.7% in June compared to last year, according to the Labor Department — a sign that tariffs may already be affecting prices. Clothing prices rose 0.4% and appliances went up about 2%.

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The president has also said he plans to impose a 30% tariff on goods from Mexico and the European Union — the U.S.' two largest trading partners.

But some economists warn that it may be some of the most vulnerable people in the U.S. who will feel the economic pinch of tariffs the president has imposed on most of the world.

Ernie Tedeschi, the director of economics at the Budget Lab at Yale — a nonpartisan research policy center that analyzes federal economic policy, spoke to Morning Edition about why low income households are more likely to feel the pinch of tariffs. Tedeschi also served as chief economist at the White House Council of Economic Advisers under Joe Biden

Here's what he had to say:

Tariffs are a kind of tax that hit poorer households more than higher earning ones

Tedeschi said most U.S. taxes, especially federal taxes, are progressive.

"That means that they pinch higher income families more than they do lower income families," Tedeschi said. "Our income tax is a great example of that. When we run the numbers on tariffs, we find that that's the opposite."

According to the Budget Lab's analysis of Trump's tariffs, prices would rise by more than 2%. Tedeschi said that could lead to an almost 4% drop in purchasing power of lower-income families, costing them about $1,500 annually.

White House spokesperson Kush Desai told NPR that "The Administration has consistently maintained that the cost of tariffs will not be borne by American consumers, but by foreign exporters who rely on access to the American economy, the world's biggest and best consumer market."

Desai also pointed to a July analysis from the White House's Council of Economic Advisers which found that the prices of imported goods have fallen this year, even as tariffs have been in effect.

"President Trump's agenda of deregulation, tariffs, energy abundance, and tax cuts led to the first decline in wealth inequality in decades during his first term, and this same agenda is going to again unleash a historic economy for working class Americans during his second term," Desai said.

Households with lower incomes tend to buy more imported, tariff-hit goods

Tedeschi said people change their consumption patterns as they make more income.

"Lower income families not only spend a greater share of their income to begin with than higher income families do, but they spend a greater share of their budget on imports, in particular because imports tend to be lower cost than a lot of domestic alternatives," Tedeschi said.

He added that the current makeup of Trump's tariffs are "almost tailor-made" to hit lower income families because the U.S. imports alternatives to U.S.-made goods specifically because they are cheaper.

Fruit and vegetables are seen at a Walmart supermarket in Houston on May 15.

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Ronaldo Schemidt

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AFP via Getty Images

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When U.S. consumers will feel the full tariff pinch is uncertain

Tedeschi said tariffs have not been this high since the 1930s, adding that "we don't really have a playbook for how tariffs this high percolate into the economy."

He continued: "What we do know from past experience is that businesses and consumers will try to front-run the tariffs; businesses increase their inventory, and so that can delay the effects when consumers finally hit them."

When Trump announced a 90-day pause on the 145% tariff rate he slapped on Chinese goods, many businesses rushed to bring in goods to shore up their inventories and make the most of the standing 30% rate.

But at the end of day, Tedeschi said, "over one or two years, [tariffs] should start flowing through the economy."

This digital article was edited by Majd Al-Waheidi. The radio version was edited by Arezou Rezvani and produced by Nia Dumas and Kaity Kline.
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