President-elect Donald Trump often argues that competition from China has hurt America’s working class. Economists broadly agree — a widely cited paper published last year found that growing imports from China between 1999 and 2011 cost 2.4 million American jobs, with roughly 1 million in manufacturing.
Yet Trump’s proposed plan to get tough on China — which involves tariffs, additional taxes that are placed on imported goods to make American-made products more competitive — could easily hurt America’s working class as well. A study published Thursday by the Council of Economic Advisers, a group of economists appointed by President Obama, demonstrates how tariffs place a heavier burden on poorer people, especially working-class families and single parents.
During the campaign, Trump proposed a 45 percent tariff on Chinese products. In December, a senior member of Trump’s transition team said the administration was mulling a tariff of up to 10 percent on foreign goods across the board to boost U.S. manufacturing, according to CNN.
It’s unclear just how likely these tariffs are to materialize. At times since election, Trump advisers such as Commerce secretary nominee Wilbur Ross have discouraged speculation, calling tariffs a last resort for countries that will not negotiate. Yet Trump has also appointed to his Cabinet vocal China critics such as Peter Navarro, who in the past argued for using tariffs as a “defensive” measure.
If tariffs do go into place, they would likely place a heavier burden on poorer people, as the CEA study suggests. That’s in part because spending on tradable goods — the kind of products that would be taxed under a tariff, such as food and apparel — make up a larger proportion of the overall spending of poorer households, as past economic research shows.
The new study looks at tariffs that are already in place in the United States, collecting more than $33 billion a year. For their analysis, the economists match tariffs collected by U.S. Customs and Border Patrol with 381 categories of goods that people report buying in surveys done by the Bureau of Labor Statistics. Their calculation looks just at final goods, not at the effect of higher tariffs on intermediate inputs.
According to the economists' estimates, the poorest 10 percent to 20 percent of households in the United States currently pay about $95 a year in tariffs, while middle-income households pay $190 and the richest 10 percent pay more than $500.
However, when you take how much rich and poor households earn into account, the difference in costs looks more extreme. In the chart below, the economists show the burden imposed by current tariffs as a percentage of after-tax household income.
The burden is heaviest for those in the bottom 10 percent of American earners: more than 1.5 percent of their after-tax household income. That’s a lot, given that those households are making less than $10,000 a year.
In fact, removing this burden would have a larger impact on poor households than the tax cuts that were passed in 2001 and 2003, the economists say.
If tariffs grew by 10 percentage points across the board, as Trump’s transition team has proposed, the lowest-earning fifth of Americans could pay roughly $300 more per year for household purchases, while middle-income Americans would pay roughly $600-$700 more, the study estimates. That would be a substantial burden in the United States, where the median household income before tax is just a little more than $50,000 a year.
The CEA study cites two main reasons for this. For one, poor people spend more of their income on the kind of goods that are affected by tariffs, like clothing, food and furniture.
In addition, in many categories of goods, products on the cheaper end are subject to higher tariffs, the economists say. That’s true for home furnishings, apparel and other household goods, including baby clothes, rubber boots, olive oil, bicycles and bicycle helmets, wine, and caskets.
It’s not exactly clear why this came about, but it could be largely unintentional. Tariffs are negotiated industry by industry, and often different values are a random legacy of many decades of various corporate and government officials battling it out across the negotiating table. That’s why ice hockey gloves are duty free, but ski gloves are taxed at nearly 6 percent and golf gloves at nearly 5 percent, for example.
Still, working families and women especially appear to have lost out in those decades of trade negotiations. When it comes to clothes, including suits, sweaters, sportswear, pants and undergarments, women’s goods are currently subject to far higher tariffs than men’s, the study shows. Men’s suits face a tariff of 14 percent, for example, while women’s suits are taxed at 23 percent. Tampons and diapers are also subject to heavy tariffs.
If Trump's administration imposes a tariff of 10 percent or 45 percent across the board, those distinctions would disappear. But working families may still stand to lose out.
Trump’s contention is that the threat of imposing tariffs will allow the United States to renegotiate trade terms and get a better deal for the working class. That may be the case, but tariffs in themselves could also weigh heavily on their fortunes.
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