Tariffs, inflation squeeze low-income Americans as prices soar

With views of current finances among the poorest Americans already near the lowest in 14 years, tariffs are set to add more pressure by making many everyday items even pricier.

Low-income households, who spend a larger share of their budgets on goods than the wealthy and tend to favor cheaper imports, will bear the brunt of the hit. Economists from Bank of America and BNP Paribas expect the February consumer price index report due Wednesday to show early signs of the impact from tariffs — in particular the additional levies on items like furnishings, clothes and electronics coming from China.

Most of the impact on goods prices will be felt in the months to come — especially necessities like groceries, gasoline and electricity — from levies on imports from Canada, Mexico and China that are already in effect and those expected in the coming weeks. Retailers like Target Corp. and Best Buy Co. are warning of higher prices due to tariffs. That's helping push long-term inflation expectations to an almost 30-year high.

"Undoubtedly you're going to have a larger impact on the lower-income consumer who's already been struggling with inflation and elevated interest rates to a larger degree," said Seth Basham, managing director at Wedbush Securities. "This is going to set them back even further."

Target's Chief Executive Officer Brian Cornell told CNBC last week that the company has done a lot of "scenario planning" on goods like fruits and vegetables, a "significant amount" of which comes from Mexico during the winter, he said.

"We're going to try to make sure we can do everything we can to protect pricing," Cornell said. "But if there's a 25% tariff, those prices will go up."

Walmart Inc. CEO Doug McMillon said last month that the world's largest retailer is seeing "stress behaviors" among budget-conscious shoppers as they contend with high food prices. Separately, the retailer has asked some Chinese suppliers, including producers of kitchenware and clothing, to lower their prices by as much as 10% per round of tariffs, Bloomberg reported last week.

With consumer spending generally slowing, businesses have recently reported "increased price sensitivity for discretionary items, particularly among lower-income shoppers," per the Federal Reserve's latest Beige Book of anecdotal information on the economy.

"We're looking at something that isn't just a trade tool to settle a trade dispute. It's becoming a consumption tax, and consumption taxes are incredibly regressive," said David French, executive vice president of government relations at the National Retail Federation. "It's proportionally a lot heavier on the lower-income families."

Even before tariffs started making headlines, some Americans were already making tough choices. Robert Sanchez, a 56-year-old resident of the Bronx, New York, was out of work for five years until October due to health issues. Now Sanchez, who works as a clinical interviewer at a kidney research program, still says he has zero savings and considers himself to be "working poor."

In recent months, he's opted for turkey or chicken rather than pricier red meat and is buying smaller bags of rice when he goes to the grocery store. Sanchez worries about prices of items like coffee and plantains that are imported.

"I think we get paid just enough money to take care of our needs, and sometimes we have to sacrifice on that as well," he said.

From February 2020 to June 2024, which encompassed the bulk of Joe Biden's presidency, the poorest fifth of US households saw prices rise on their purchases by two percentage points more than the richest fifth of US households — or about 8.3% faster than the overall CPI, according to an analysis by the Minneapolis Fed. That helped push lower-income voters, as well as the broader electorate, toward Trump in the 2024 election.

Trump's current approach to tariffs is much more aggressive than in his first term. Back then, the White House initially targeted washing machines and solar panels before adding tariffs to steel and aluminum. Because intermediate goods like metals are more spread out across the supply chain, the levies usually take longer to be passed on to the consumer.

This time around, not only have Trump's moves brought the average US tariff rate to the highest level since World War II, they're also targeting a slew of consumer goods — including key food and energy products. In an address to Congress last week, Trump described the higher prices that tariffs are expected to cause as a "little disturbance" the nation ought to be able to overcome. 

"In his first term, President Trump instituted tariffs that helped level the playing field for American industries and workers without hiking inflation,"  White House spokesman Kush Desai said in a statement. "In his second term, he is again using tariffs to raise wages, create jobs, expand investment, and deliver economic prosperity." 

Taylour Grant already relies on government assistance to help with groceries for her four kids, since her job as a medical assistant — which pays about $19 an hour — isn't enough to make ends meet. When the monthly aid runs out, the 28-year-old single mother in Tampa, Florida, has to choose between buying food or gas to go work, and she's worried about how far her paycheck will go once tariffs kick in.

"That's an extra bill added on. And with the jobs not really paying us more, but everything else around us is going up, it puts us in a situation like, 'Okay, so now we're going to be jeopardizing rent, or mortgage, or light bills,'" Grant said. "How long are we going to be able to survive without completely hitting rock bottom?"