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Trump tariffs to hit middle-, lower-income families hardest, study finds

December 6, 2018

Wealthy investors may have been the biggest losers from this week’s market fluctuations, but the tariff fears that drove the sell-off are likely to leave a bigger hole in the wallets of lower- and middle-income households, who consume the goods that would become pricier, according to a new study Wednesday.

The Trump administration already has imposed tariffs worth close to $42 billion on imported steel, aluminum and goods such as washing machines translating into a $146 after-tax income hit for middle-class families, the Tax Foundation calculated.

Tariffs can lead to price increases or a squeeze on wages and shareholders’ returns as businesses adjust to the additional levies they must pay to access and sell goods.

And while everyone across the economic spectrum buys those goods, the tariffs amount to a bigger chunk of expenditures for those on the lower end.

“If you think of the basket of goods that a lower-income household consumes, more of that will be burdened by tariffs and a larger share of their income goes toward that consumption,” said Erica York, the author of the report.

She calculated that lower- or middle-class families will see an income drop equivalent to one-third of 1 percent a tenth of a percent more than the top 1 percent of earners.

Though the difference might appear small on its face, it translates into a significantly bigger hardship for lower-income families, said Bryan Riley, director of the Free Trade Initiative at the National Taxpayers Union.

“They’re kind of getting dinged in two ways the first is that this is a policy that penalizes them more and the second is that they don’t have as much income in the first place,” he said.

That gap also could grow if the Trump administration follows through with an additional $129 billion worth of tariffs it has threatened to impose on auto imports and Chinese goods, the study found.

At that point, low- and middle-income households would see a hit equivalent to 1.4 percent of after-tax income. The wealthiest would see a drop of less than 1 percent.

“You see that spread widening,” Ms. York said. “Reducing tariffs would kind of be the opposite it would be a bigger positive change in after-tax income over time for lower-income taxpayers.”

President Trump has left the world guessing about what comes next.

“I am a Tariff Man,” he proclaimed on Twitter Tuesday, sending stock market indexes tumbling. The U.S. markets were closed Wednesday for the National Day of Mourning for former President George H.W. Bush.

He said the tariffs he already has imposed are “taking in billions.”

Yet he also said on Twitter Wednesday that a handshake deal he struck with Chinese President Xi Jinping last weekend in Argentina could free up some stalled markets soon.

Economists and industry groups have long warned that tariffs translate into pain at the stores for consumers, as companies adjust.

David Melbourne, a senior vice president at Bumble Bee Foods, said his company is carefully eyeing new and planned levies on imported tuna loins, saying canned tuna is one of the most affordable sources of lean protein for U.S. consumers.

“While canned tuna is enjoyed in most American households, I’m very concerned that an increase or tariff burden on potential pricing in the market will adversely affect certain demographics the most, and that would be the older boomers and retirees, and low or average income families,” he said.

But other groups, who say the tariffs are necessary in the trade standoff with China, say the most dire forecasts of the tariffs’ negative effects on consumer prices and the economy have not come to pass.

“Lower-income households are getting harmed only in the minds of economists, but not in the real world,” said Michael Stumo, CEO of the Coalition for a Prosperous America.

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