Study: Trump's Tariffs Increase Tax Burden on Lower-Income Americans, Favor Wealthy Amid China Trade War

The Institute on Taxation and Economic Policy (ITEP) study finds that tariffs from the Trump administration act as a regressive tax, disproportionately affecting lower- and middle-income Americans. Released Wednesday, the study shows that if tariffs remain through 2026, the poorest Americans will face a tax increase over three times greater, as a share of income, than the top 1%. The tariffs, including a 145% rate on Chinese goods, raise consumer prices, impacting those with lower incomes more severely due to their spending patterns on essential goods.

Tariffs as a De Facto Tax Policy

The ITEP study examined the effects of a tariff regime that includes a 10% baseline tariff on most imports, 25% on certain sectors from countries like Mexico and Canada, and a steep 145% tariff on Chinese goods. These tariffs, originally introduced during Donald Trump’s first term and reintroduced in his second, were framed as a tool to protect American industry and reduce trade deficits. However, the study finds that the economic burden of these tariffs falls most heavily on consumers, particularly those with lower incomes.

According to ITEP’s findings, households in the bottom 20% of the income distribution—those earning less than $29,000 annually—would effectively pay an additional 6.2% of their income due to higher prices caused by tariffs. Middle-income households, earning between $55,000 and $94,000, would see a 5% increase. In contrast, the top 1% of earners, with incomes above $915,000, would experience only a 1.7% increase.

These figures underscore the regressive nature of tariffs: because lower-income households spend a larger share of their income on goods—especially imported consumer products—they are more exposed to price increases resulting from import taxes.

Methodology and Data Sources

ITEP’s analysis is based on a microsimulation model that incorporates household income data, consumption patterns, and the incidence of tariffs passed through to consumer prices. The model assumes that the full cost of tariffs is borne by U.S. consumers, a conclusion supported by research from the Federal Reserve Bank of New York and the Peterson Institute for International Economics.

The Yale Budget Lab also contributed to the broader understanding of tariff impacts, estimating that the average American household would lose about $3,800 annually due to the tariffs. For the lowest-income households, this loss represents approximately 4% of disposable income, compared to just 0.5% for the top 10%.

Disproportionate Impact on Essential Goods

The regressive effect is amplified by the types of goods most affected by tariffs. Many of the targeted imports—such as clothing, electronics, and household items—are staples for American families. These goods are disproportionately consumed by lower- and middle-income households, who have fewer alternatives and less flexibility in their budgets.

For example, the popular menthol ointment Tiger Balm, imported from China, now faces tariffs as high as 145%. Its U.S. distributor, Prince of Peace Enterprises, anticipates $3 million to $5 million in annual tariff costs, which may eventually be passed on to consumers. While the company has so far absorbed the costs, smaller retailers and herbal shops operating on thin margins are already feeling the squeeze.

Small Businesses and Supply Chain Strain

Small businesses, particularly those reliant on imported goods, are also bearing the brunt of the tariff policy. Many are unable to absorb the increased costs and are forced to raise prices or reduce operations. This is especially true for niche importers and distributors in sectors like health supplements, herbal products, and specialty foods, which often lack domestic alternatives.

Matt Chin, president of Prince of Peace and the Oriental Food Association, noted that many small Chinese American distributors are being “squeezed” by the tariffs. These businesses, which serve ethnic communities and rely on imports from Asia, are struggling to maintain profitability amid rising costs and uncertain trade policy.

Revenue Shortfalls and Policy Trade-Offs

Despite claims from the Trump administration that tariffs could replace income taxes, economists remain skeptical. The U.S. imports roughly $3 trillion in goods annually, compared to over $15 trillion in reported adjusted gross income. Even under optimistic projections, tariff revenue would fall far short of replacing the more than $2 trillion collected annually from individual income taxes.

Peter Navarro, Trump’s former trade advisor, estimated that tariffs could generate $6 trillion over a decade. However, the Yale Budget Lab projects less than half that amount—around $2.4 trillion. The Peterson Institute estimates that tariffs could at most replace 40% of income tax revenue, but only at the cost of triggering a recession due to reduced consumer spending and retaliatory trade measures.

Moreover, technical issues have hampered tariff collection. At one point, a glitch at U.S. ports prevented the government from collecting any revenue from the tariffs, further undermining their fiscal reliability.

Public Opinion and Political Divide

Public sentiment on the tariffs remains divided. According to a Pew Research Center survey conducted in April 2025, 59% of Americans disapprove of the tariff increases, while 39% approve. Approval is higher among Trump voters (81%) and older Republicans, while Democrats overwhelmingly disapprove (90%).

Interestingly, support for tariffs does not vary significantly by income level, with 41% of middle-income Americans approving, compared to 37% of lower-income and 36% of upper-income households. This suggests that the regressive impact of tariffs may not be fully understood by the public or may be overshadowed by political alignment.

Broader Economic Effects

Beyond household finances, the tariffs have contributed to inflationary pressures and reduced U.S. competitiveness. The International Monetary Fund estimates that U.S. GDP declined by 0.3% to 0.4% in the years following the initial implementation of tariffs. The Peterson Institute notes that while some manufacturing jobs were temporarily protected, broader job losses occurred due to higher input costs and reduced demand.

Nancy Qian, a trade policy expert at Northwestern University’s Kellogg School, emphasized that the benefits of tariffs are unevenly distributed. “Tariffs are a tax on American consumers to subsidize American manufacturing,” she said. “Because of automation, manufacturers don’t need that many workers, so the profits will be distributed in a very regressive way.”

References

• Trump’s Tariffs Tax Hike Not So Coincidentally Spares the Rich
• Trump says tariff revenue could replace income taxes. Why economists disagree.
• Why Tariffs are a Tax on the Poor
• Understanding the Effects of Tariffs
• The Economic Ripple Effect: Analyzing the True Cost of Trump's Tariffs on the Global Economy
• What Trump Wants From Tariffs … and What the U.S. Might Get Instead
• Trump’s Tariffs Tax Hike Not So Coincidentally Spares the Rich
• Tariffs, DEI and cuts to government: Views of Trump's key actions