Trump's Tariffs Hit Poorer Households The Hardest: Yale's Budget Lab Finds 2.5% Drop In Disposable Income For Bottom Decile

A new study finds that President Donald Trump's tariff policies are landing hardest on the nation's poorest households, with the bottom income decile bearing the brunt of the economic fallout.

What Happened: On Sunday, Yale University’s The Budget Lab, a non-partisan policy research center, unveiled its report titled “State of U.S. Tariffs,” assessing the impact of Trump’s “Liberation Day” tariffs across American households and industry.

The report, which analyzes all U.S. tariffs and foreign retaliation measures implemented through June 1, calculates short-run consumer losses before households shift their spending habits, as they often do in response to shifting market and price dynamics.

See Also: Trump’s 50% Steel Tariff Could Drive Up The Costs For Automakers: ‘Almost $2,000 Of Cost For Each Car’

However, even after the substitution effect kicks in, the study finds a lasting impact on household purchasing power, with consumer prices up 1.3%, and the average American family facing $2,200 in additional annual expenses.

“Tariffs are functionally a regressive tax,” the report states, as its findings point to a steep gradient in burden across income brackets. This means that lower-income households are losing a much bigger share of their income to higher prices than those in the higher brackets.

While the second decile also faces a severe reduction in disposable income, wealthier households are far less affected. The top 10% of earners see only a 1% hit, or about $5,000, but as a share of income, the impact is relatively modest.

Clothing, shoes, and vehicle prices have seen the sharpest increases so far, according to the report. Footwear is up 31%, and new vehicle costs have climbed by over $6,000 on average.

The Yale team has modeled these effects under a “policy in perpetuity” assumption, meaning all 2025 tariffs are assumed to remain indefinitely, even those officially labeled temporary.

Beyond households, the macro impacts are mounting, with the report estimating that U.S. GDP will shrink by 0.5 percentage points in 2025, and job losses are expected to reach 376,000 by the end of this year.

Why It Matters: The report is rather tame this time around, with The Budget Lab forecasting a 64% rise in apparel prices over a month ago, just weeks after the tariffs were announced. It now pegs the figure at 28%.

Economists on Wall Street are broadly in consensus that the annual headline inflation rate will remain above 2.4%, ahead of the Fed’s 2% target for initiating rate cuts, largely attributed to April’s tariff shock.

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