Tariffs Tax the Poor More: Evidence from Household Consumption During the US-China Trade War

Abstract

Using disaggregated US household expenditure data, we study the distributional consequences of the US-China trade war. We estimate a highly flexible demand system to compute household-specific price indexes. The increases in US tariffs on Chinese products between 2018 and 2019 led to an average price index increase of 1.09%, with a disproportionately larger impact on low-income households. Specifically, we document a 0.9 percentage point smaller increase in the household price index for the top 20% income households compared to the bottom 20%. The difference stems from wealthier households’ greater expenditure adjustments and smaller reductions in product variety

Keywords: US-China trade war, tariffs, income inequality, distributional effects of tariffs, household consumption

JEL Classification: F140, D310, F130