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Tariffs Hit Poor Americans Hardest

by | July 31st, 2014 | 12:44 pm
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Raising or maintaining tariffs on imports is called protectionism for a reason. The goal is to protect domestic industry and jobs from lower priced foreign goods. But often forgotten is the impact of the US tariff structure on the wallets of American consumers when they visit shopping malls and have to pay a higher price for the goods they purchase. The table below tells the story by income category: Poor households get hit hardest.

  Annual household
pretax income (dollars)
Tariff impact (percent)  
 
 
  Less than 5,000 12.10  
  5,000 to 9,999 13.95  
  10,000 to 14,999 11.50  
  15,000 to 19,999 11.16  
  20,000 to 29,999 9.85  
  30,000 to 39,999 10.39  
  40,000 to 49,999 9.14  
  50,000 to 69,999 8.14  
  70,000 to 79,999 8.29  
  80,000 to 99,999 7.93  
  100,000 to 119,999 6.52  
  120,000 to 149,999 6.11  
  150,000 and more 5.24  
 
 

Sources: Bureau of Labor Statistics, Consumer Expenditure Survey; United Nations Conference on Trade and Development, TRAINS

Because tariffs are imposed by Congress, they protect politically influential firms at the expense of household consumers and industrial purchasers. As the table illustrates, US tariffs broadly operate as a regressive tax. They put much more pressure on lower income households than on higher income households.

The impact of tariffs on the pocketbook can be calculated using consumption data from the US Bureau of Labor Statistics (BLS) and applied tariff rate data from UN Trade Analysis and Information System (TRAINS), which are matched with the spending habits of various income groups. For each income bracket, some 21 product groups that are subject to a nonzero tariff (ranging from fruits and vegetables to furniture) are assigned tariff impact scores equal to the share of consumption spent on those products times the tariff rate on imported goods of the same type. For example, imported poultry products are subject to an average tariff of 10 percent. Poultry makes up about 0.4 percent of consumption for households making less than $5,000, which serves as the “weight” for the tariff on poultry products. The results are then averaged, giving an average tariff faced by consumers for each income bracket (on products that are associated with a nonzero tariff). This calculation assumes that a tariff of 10 percent raises the price of both imports and competing domestic goods by 10 percent. That does not always happen. Some domestic producers offer lower prices for goods competing with imports. But even if the impact of tariffs on consumers is imprecise, the figures show that the relative impact of the US tariff schedule affects different household income groups in different ways. The impact disproportionately falls on lower income households, as any regressive tax, such as a sales tax, would.

Individual product scores are combined as a weighted average, giving the results shown in the table above. The biggest contributor to the regressive impact of the US tariff schedule on lower income households is tobacco, which faces an extremely high tariff (roughly 90 percent). Food and clothing tariffs also have a greater impact on poor households.

Our table does not claim to give a complete picture of US protection against imported products. It doesn’t reflect barriers on services (such as health and education), and it doesn’t reflect nontariff barriers on goods (such as the US import quota on cheese). Tariffs, moreover, can have a “supply side” impact on inequality, beyond these measures of costs to consumers. Skilled workers or capital owners could get more income because of trade protection, producing greater inequality. Or unskilled workers could get more income, leading to less inequality. The impacts on the “supply side” of production are unclear. But the table clearly portrays the regressive pocketbook dimension of the US tariff structure.