SARAH MCCAMMON, HOST:
We're going to talk more now about tariffs. President Trump has used them as a negotiating tool, as we've noted, but they also have real-world impact. In addition to threatening tariffs related to Russia, Trump has used tariffs and the threat of them to pressure allies, like the European Union and Mexico. Last week, he sent dozens of letters setting an August 1 deadline to negotiate new trade agreements. Now, some economists say low-income households in the U.S. will bear the brunt of those tariffs. One of those economists is Ernie Tedeschi. He's the director of economics at The Budget Lab at Yale, and he served as chief economist at the White House Council of Economic Advisers in the Biden administration. Ernie Tedeschi joins us now. Good morning. Thanks for being here.
ERNIE TEDESCHI: Thanks for having me.
MCCAMMON: You have called tariffs a regressive tax that hits poor households the hardest. What have you learned from the research about that and how that works?
TEDESCHI: Sure. So most taxes in America, especially federal taxes, are progressive. That means that they pinch higher-income families more than they do lower-income families. Our income tax is a great example of that. When we run the numbers on tariffs, we find that that's the opposite. Tariffs pinch lower-income families more than they do higher-income families. And there are a number of reasons for that, but the bottom line is that, you know, when you look at overall price increases as a result of these tariffs, you know, on average, it would come to about a 2.1% price increase. That's all of the tariffs that have been announced in 2025 so far. But that pinches more for lower-income families. Lower-income families would see a 3.9% decrease in their purchasing power each year, every year, so more than the average. If you translated that to the average income of families at the bottom, that would be like losing $1,500 per year every year in income.
MCCAMMON: Now, if you think about this, it seems fairly intuitive, right? Wealthier, middle-class families, they have more money, they're more insulated from sort of ups and downs. Is this just simply down to having more resources, or are there more layers to this?
TEDESCHI: That's part of it. It also comes down to consumption patterns and how everybody changes their consumption patterns as they make more income. So 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. In fact, that's one of the reasons why we import them in the first place. So these tariffs are almost tailor-made to hit lower-income families disproportionally.
MCCAMMON: Yeah. Can you give us an example? I mean, what types of goods do you see lower-income households relying on, perhaps more than upper-income households?
TEDESCHI: Sure. So everybody, for example, buys clothing, of course. Lower-income families are going to spend a greater share of their income on clothing, for the most part, than higher-income families. Again, it comes down to the availability of resources. And in particular, one of the biggest sources of cheaper clothing in the United States is China. Well, it just so happens until this past week, when we started seeing higher tariffs on the EU and Brazil, China had the highest tariff placed on it by this administration so far at 30%. So, you know, tariffs like that are going to hit, you know, the types of goods that lower-income families tend to rely on.
MCCAMMON: What kind of a timeline are we looking at here? I mean, how soon will people see these prices start to go up in a way they really notice day to day?
TEDESCHI: I feel like that's the $64,000 question. It's very uncertain. We haven't had tariffs this high since the 1930s, since the days of the Great Depression. So we don't really have a playbook for how tariffs this high, you know, percolate into the economy. 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. But we do know that at the end of the day, you know, over one or two years, they should start flowing through the economy.
MCCAMMON: Ernie Tedeschi is a former Biden economic adviser, now director of economics at The Budget Lab at Yale. Thank you so much for joining us.
TEDESCHI: Thanks so much for having me.
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