Americans will have less money to spend in high-tariff world
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The fallout of high tariffs on most Americans is simple and painful: They'll have less money to spend.
Why it matters: The tariffs will likely increase the prices of necessities like food, clothing and cars, and leave folks with less disposable income to spend on other things.
State of play: That's the view of the Federal Reserve chair, and most economists, even ones on the right.
- "The Trump tariffs will shrink the amount of money in Americans' wallets," says Michael Strain, an economist at the conservative American Enterprise Institute.
- The Wall Street Journal editorial page agrees: "There will certainly be higher costs for American consumers and businesses," they write. "Tariffs are taxes, and when you tax something you get less of it."
By the numbers: The tariffs hit to earning power amounts to an average 2.3% "pay cut," or decrease in disposable income, for every American household, according to a widely cited estimate from the Yale Budget Lab.
- That translates to $3,800 a year.
Stunning stat: Lower earners can't afford to lose much. The bottom 20% of earners spent a third of their after-tax income just on food in 2023, per the USDA.
How it works: Adding a high tax on imports means those goods will cost more — especially on items we don't make or grow in the United States, like clothing or shoes or chocolate. Or, the iPhone.
Made in America goods could see prices rise, as well.
- The cost of running a factory will rise because manufacturers typically need "inputs" (parts, raw materials, etc.) from other countries.
- There's also the chance that costs rise for items unaffected by tariffs. That's what happened in Trump's first term — tariffs on washing machines also increased the price of dryers, as manufacturers took the opportunity to raise prices overall.
Yes, but: Supporters argue that free trade has been bad for Americans — especially workers in manufacturing and their families — and that Trump is moving the U.S. back into an era that puts these folks first.
- Tariffs "Prioritize the national interest and the flourishing of the nation's working families," said Oren Cass, chief economist at American Compass, in a statement this week.
- "We support tariffs and any policies that will lead to the creation of good union jobs and bring back manufacturing to the United States," says Kara Deniz, a spokesperson for the Teamsters union. "Cost is always a scare tactic. And it's a choice. Corporations are raking in massive profits (off of the backs of workers)".
The bottom line: Globalization and free trade was certainly catastrophic for some factory workers and towns in the U.S.
- It also benefited most consumers, who have been able to buy cheap goods for decades.
- If these tariffs actually take effect, that era would be over.
