Tariffs Could Push Nearly One Million Americans Into Poverty
As the array of tariffs put in place by President Trump come more fully into force, analysts are beginning to gauge the impact on specific groups and sectors in American society. A new study by The Budget Lab at Yale University predicts that tariffs could put as many as one million additional Americans below the poverty line in coming months. Spotlight spoke with John Ricco, associate director of policy analysis at The Budget Lab, about the new research. The transcript of that conversation has been lightly edited for length and clarity.
Let’s start with some of the main takeaways from the analysis and the basic methodology.
Sure. The idea behind this study is that tariffs are a form of tax called an indirect tax, which means that they are either going to raise prices across the economy, or they will reduce the incomes that people earn through working at their jobs. These are taxes that are placed on business inputs, and those businesses have to pass those costs to either the people who make the money in the firm, the workers and the owners, or to the people who buy their products, the consumers. Either way, no matter how you square it, this is a cost on American households. A lot of people have done different analyses looking at the economic impacts of tariffs and some of the distributional impacts. And we thought it would be interesting to look at one specific distributional measure, which is how these tariffs will affect the poverty rate.
And so, we did this calculation in a pretty straightforward way. Going back to that mechanism I described before, if you assume that tariffs are going to be passed forward to consumers, that’s going to raise the price level, and the poverty rate calculation is done by comparing households’ incomes to a fixed threshold that is indexed for inflation. When inflation rises due to tariffs, the poverty threshold will rise, therefore, more people will fall below the measured poverty line, and that will impact the poverty rate. We put together all the data and used our economic model to predict the impact of tariffs on prices and what we found is that depending on which measure of poverty you use, we’re looking at more than half a million additional Americans living in poverty under the tariff regime that was put into place this year and as many as 900,000. There are some technicalities based on which poverty measure you use there.
Our audience is very familiar with the two different measurements, so if you could talk a little bit more about the difference in the impact on those two.
If we first look at the official poverty measure—which is simpler of the two, in that we’re really just looking at a specific threshold that is indexed to overall inflation—that’s the high end one where we’re looking at close to 900,000 additional Americans living in poverty. The number that we put out is 875,000. And if you break that down by age, we find that 375,000 of those additional Americans living in poverty would be children. In terms of the broader population context, that’s a 0.3 percentage point increase in the poverty rate. So, it’s not enormous, but it’s not nothing.
If instead we look at the supplemental poverty measure, it is a bit more comprehensive, both in how it measures the poverty line and what goes into the cost-of-living index and accounts for a much broader set of resources that families have available. Under that metric, we find the slightly lower impact. And what’s driving that lower impact relative to the official poverty metric is that a lot of these transfer programs that help reduce poverty are actually themselves indexed to inflation. And so, if we were to see price levels go up due to tariffs, at least in the following year, families would see some relief because these programs are designed in such a way that their benefits will be automatically adjusted.
And what was the change for the supplemental measure?
In that case, we’re looking at 650,000 additional Americans living in poverty, of which 150,000 are children. And in terms of the overall rate, that’s a 0.2 percentage point increase.
And did you your calculations involve looking at specific commodities? As in, what would be driving this the most in terms of higher prices?
The way we analyze the impact of tariffs is through a model that takes into account all the price impacts because we know that tariffs act similarly to something like a retail sales tax or a value-added tax that you see in other countries across the world. But one of the main differences is that with these tariffs, the rate varies dramatically by type of good. And so, certain products like say steel or certain products that come from certain countries that are more likely to produce some goods more than others are hit harder. And this causes different kinds of goods that people consume to have different price impacts.
And that is actually another driver of the difference between the impact that we find for the official poverty measure and the supplemental poverty measure, because the former is looking at a much broader basket of goods and services when it does its inflation index and calculation. Whereas the supplemental property measure is looking at an index that includes food, clothing, shelter, utilities, telephone, and internet. We actually found that relative to the overall price impact, those categories that are used in the supplemental poverty measure will be slightly less impacted by tariffs. And part of that is because things like shelter or telephone and internet services are not as directly exposed to the international goods tradable sector as something like consumer durables.
And any additional work related to this upcoming John?
Those of us at the Budget Lab have been thinking a lot about the distributional impacts, in part because that’s sort of central to our mission, to expand the toolkit that policy makers and the public have to analyze the impacts of policy changes. We really want to drill down and be a little bit more specific and look at how this might cut across different kinds of households. On the tariff piece specifically, we have done lots of distributional analysis of tariffs looking at the impacts across income groups. But we’re working on a project to really integrate our models in a way that we can actually cut across different groups, like age groups or gender or race. This is not in our immediate future but is a topic that we are working towards being able to try to capture in our analysis.