Some say the people likely to pay the steepest price for Trump's attempts to bend Mexico and China to his will are poor Americans, who already live close to the financial edge and could have to pay more for everyday purchases.
For many low-income households, tariffs "are a tax on their consumption, and by raising the cost of their consumption, they will likely have to cut back," said Jay Shambaugh, a senior fellow at the Brookings Institution.
The president last week announced plans to impose a 5% tax on Mexican imports unless that country halts all unauthorized border crossings into the U.S. The tariffs would climb to 25% in the coming months if Mexico fails to stop the flow of immigrants.
But rather than force concessions from China and Mexico, the tariffs could boomerang on U.S. consumers and companies. The taxes could raise the price of fruits and vegetables and disrupt the supply chain for auto parts in ways that could hurt vehicle sales.
A 2017 research paper co-authored by Shambaugh found that tariffs would eat up a greater proportion of the incomes of the bottom 10% of households. The burden would be much lighter for those higher up on the financial ladder.
These findings stand in sharp contrast to Trump's misleading claim that foreign countries are paying the tariffs. In reality, the taxes are passed along to consumers and companies in the form of higher prices and reduced economic activity that can stifle overall growth.
There are two major reasons why the poor face an outsized burden, Shambaugh said. First, poorer Americans tend to spend all of their income, while wealthier Americans have enough income left over to save and invest. That leaves the poor more exposed to higher prices from import taxes.
Second, the wealthy are more likely to splurge on services such as farm-to-table restaurant meals or gym memberships that are not subject to tariffs at all. But poorer Americans spend a higher percentage of their income on basics such as clothing and groceries that are more likely to be imported and subject to tariffs.
