We have a significant level of political polarization in this country. I think much of it comes from contradictory interpretations or opinions, usually ideological, of important policy decisions.
Much of what we feel about policy choices is shaped by what others tell us about the likely impact of those decisions. Sadly, many will choose unwisely against their own interests due to financial illiteracy, misinformation, or both.
We face an epidemic of both challenges.
Let me explain with a current example.
“Whoever is careless with the truth in small matters cannot be trusted in important affairs.”
Albert Einstein[1]
- The Math Adds Up in Aggregate
- The Interpretation of the Math Does Not
- Where Lower-Income Families Spend Their Money
- A Rough Estimate for Lower-Income Families
- What the Headlines Missed
- The Substitution Effect Deserves More Weight
- What the Bottom 50 Percent Faces
- The Political Reality
- Beyond the Soundbites
- Reference Sources
You have probably seen the headlines proclaiming that the average American household should expect a $3,800 negative impact due to tariffs. That number came from the Yale Budget Lab’s April 2, 2025 report.[2] By its August 1 update, Yale’s estimate was $2,400 per household on average.[3]
I know a little about tariffs, having spent many years on international trade and written on the topic before here: Are Tariffs A Trade Fix or Economic Chaos? and The iPhone Tariff Problem: Why It’s Time for a Smarter Approach. So, I was intrigued by this finding that contradicted my own analysis.
A little exploration, and here is what I found.
The Math Adds Up in Aggregate
The $3,800 is an average across all American households, but what it is represented as meaning is questionable.
There is a real difference between “an average of $3,800 per American household” and “$3,800 per average American household.”
The calculation means the former, but headlines pitched it as the latter.
The reality is simple: Yale’s April 2 estimate averaged $3,800 per American household, but the average American household wouldn’t pay $3,800. In that same estimate, households in the second-lowest tenth by income face about $1,700, less than half the average, while households in the middle tenth face about $3,000. Wealthy households pay the most in dollars. As a share of income, though, Yale finds the burden falls hardest at the bottom.[2]
It is a meaningful difference in interpreting facts, not statistical semantics. That interpretation is incredibly useful if we want to understand who gets affected and by how much when trade wars escalate.
The Interpretation of the Math Does Not
The Yale Budget Lab’s headline-grabbing figure is an average. Yale estimated that the 2025 tariffs would raise consumer prices 2.3 percent in the short run, “a loss of purchasing power of $3,800 per household on average.”[2]
To be fair, the Yale Budget Lab presents the $3,800 as an average and includes a distributional analysis that shows what they think would happen with different household income levels.
Many news organizations ran with the overall headline and interpreted the study as a $3,800 impact on the average household.
But that headline, read as what every family pays, treats a family earning $30,000 the same as one earning $300,000. It ignores differences in spending patterns, consumption choices, and exposure to imported goods across income levels.
That reading overstates what the typical American household would pay.
The bottom 50 percent of American tax filers, those reporting less than $50,339 in adjusted gross income in 2022, face a completely different economic reality.[4]
A filer right at that cutoff keeps roughly $46,100 to $47,800 after federal income tax, depending on filing status (ignoring credits, and before payroll taxes).[5] Taken together, the bottom half of filers pays only about 3 percent of all federal individual income taxes,[4] and I have written about ways to reduce their burden here: This small move transforms Federal Income Taxes to help millions.
The bottom 50 percent spend their money very differently from wealthy households.[6] And crucially, they spend fewer dollars on the imported goods that tariffs target.[2]
Where Lower-Income Families Spend Their Money
Exploring the spending patterns of lower-income households shows why their dollar costs run lower.
In 2024, households in the lowest income fifth spent about 42 percent of their budgets on housing, including rent, mortgage payments, and utilities.[6] These are predominantly domestic services with minimal tariff exposure.[3]
Food takes another large share. In 2016, about 87 percent of U.S. food and beverage spending went to domestically produced products. While some imported ingredients face tariffs, the bulk of what families eat (bread, milk, and basic proteins) comes from American farms and processors.[7]
When I map spending patterns against my own rough estimates of import exposure, a clear picture emerges:
- Housing: 5% import exposure
- Food: 13% import exposure (more if imported ingredients count)
- Transportation: 25% import exposure
- Healthcare: 8% import exposure
- Other goods: 35% import exposure
For low-income households, I estimate that imports make up only a little over 15 percent of total spending.
A Rough Estimate for Lower-Income Families
Consider a filer reporting $50,339, right at the line between the bottom and top halves of tax filers, and treat that as the household’s income. After federal income taxes, and before payroll taxes, they keep about $46,100 to $47,800. I assume they spend about $45,700 a year, which is generous, since payroll taxes still come out of what they keep.
Using the spending shares of the lowest income fifth, which likely understate this household’s exposure, only about $7,000 of that spending is on imports.
With the overall average effective tariff rate, the tariffs charged as a share of the value of imported goods, at about 18 percent (Yale’s August 1 estimate), this family faces price increases of roughly $1,300 per year. That is a little over half of Yale’s average of $2,400 per household and below its median of $2,200.[3] You would expect it to fall below the median, since an income of $50,339 falls in the second-lowest fifth of U.S. household incomes.[8] My estimate counts only the tariff on the imported share of spending, so it likely runs low.
Let me say that again. My estimate for a household right at the line between the bottom and top halves of tax filers is about $1,300, and it likely runs low. Yale puts the typical household, its median, at $2,200, only a little below its $2,400 average.[3]
Even if effective tariff rates climb to 35 percent, accounting for the highest levies on specific products, my method puts this household at roughly $2,500, about Yale’s August 1 average.
The math is unforgiving for higher-income households in dollar terms. A family spending heavily on electronics, luxury goods, and other imported products faces much greater exposure. They have the income to absorb it.
What the Headlines Missed
How basic information gets analyzed and reported in the media deserves scrutiny.
In this case, the Yale Budget Lab delivers a top-line average per household, along with much lower figures for households at the bottom. Many of the outlets that reported it picked up the headline average and turned it into a distressing story about the impact on the average American household.
The deeper problem is framing. The Lab’s headline household figures are gross costs that leave out how the tariff revenue is used. In June 2025, when the Lab paired the tariffs with the budget bill the House had passed, which cut both taxes and spending, it found the bottom 80 percent of households still come out behind on average.[9] The Lab’s headline figures are measured before households switch to other products. And as far as I can see, the Lab puts no separate value on relying less on foreign supply chains, though it does find U.S. manufacturing output 2.1 percent higher in the long run.[3]
Each of those is a defensible modeling choice. But they are choices, and the last two tilt the picture toward costs. A reader should know that before treating the headline number as settled.
The Substitution Effect Deserves More Weight
In my experience, lower-income families are substitution champions. When prices rise, they often switch to cheaper alternatives faster than wealthy households.
If Chinese electronics get expensive, affluent families grumble and pay up. Poor families buy used phones, shop at different stores, or delay purchases entirely. They have stronger incentives to avoid tariff-hit products.
The Yale analysis estimates that substitution lowers its average cost from $2,400 to $2,000 per household, about 17 percent, and it reports this in its key takeaways.[3] My own view is that substitution effects could cut tariff impacts in half for households with limited budgets and strong price sensitivity.
What the Bottom 50 Percent Faces
By my own estimate, using my assumptions about spending patterns, import exposure, and substitution behavior, the bottom half of tax filers face tariff burdens between $500 and $1,500 annually. Yale’s figures are not a direct match, since Yale ranks households rather than filers and counts costs before any switching to other products. They run from about $1,300 for the poorest tenth of households up to $2,200 at the median.[3]
For a household at the $50,339 cutoff, my $1,300 estimate is a little under 3 percent of what the household keeps after federal income tax. Yale estimates that the poorest tenth of households, a lower-income group than this one, lose 3.4 percent of their income, measured on a broader income that includes government transfers.[3] These distinctions matter enormously for families living paycheck to paycheck.
It also matters greatly if you are out there complaining about the impact of tariffs based on a misread average.
Meanwhile, the top 20 percent of households, those earning over $165,300 in 2023, face the largest tariff costs in dollars.[8][2] They spend more dollars on imported goods and, in my experience, have less reason to substitute.
The Political Reality
I think this distributional analysis helps explain the political durability of tariffs. If, as I suspect, the voters most likely to support trade protection are lower-income households, they face the lowest dollar costs, even though Yale finds those costs take a larger share of their income. Working-class families hear the promise of factory jobs and see smaller price increases in dollars, though Yale projects 497,000 fewer payroll jobs by the end of 2025.[3]
From the coverage I saw, you would rarely learn that lower-income households face the lowest dollar costs.
Upper-income households pay the most in dollars, and they have the resources to absorb higher costs. If they are also the most opposed to tariffs, as I suspect, they lack the political numbers to prevent the policies.
The $3,800 average is easy to misread in political debates. Read as what every family pays, it overstates the dollar cost for families in the bottom half, even though those families feel it most as a share of income.
Beyond the Soundbites
Trade policy deserves better analysis than mathematical averages that obscure more than they reveal.
The Yale Budget Lab’s headline figures drive political narratives, but the headline alone fails to capture the complex ways different households experience these policies.
The bottom half of tax filers won’t pay $3,800 in tariff costs. They’ll pay less, and those near the bottom far less. The wealthy will pay significantly more while having the income to handle it.
That’s not a vindication of tariff policy. But it’s the truth about who pays the most in dollars when America chooses trade protection over free trade.
The honest debate should focus on whether lower dollar costs for working families and higher costs for the wealthy produce sufficient benefits in jobs, national security, and economic independence.
That’s a more complicated conversation than scary averages, and it’s the one we need to have.
Reference Sources
- https://quoteinvestigator.com/2014/04/15/large-truth/
- https://budgetlab.yale.edu/research/where-we-stand-fiscal-economic-and-distributional-effects-all-us-tariffs-enacted-2025-through-april
- https://budgetlab.yale.edu/sites/default/files/page_to_pdf/1002/publication_1002.pdf
- https://taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2025/
- https://taxfoundation.org/data/all/federal/2022-tax-brackets/
- https://www.statista.com/statistics/247420/percentage-of-annual-us-consumer-spending-by-income-quintiles/
- http://www.ers.usda.gov/data-products/charts-of-note/chart-detail?chartId=88950
- https://www2.census.gov/library/publications/2024/demo/p60-282.pdf
- https://budgetlab.yale.edu/research/combined-distributional-effects-one-big-beautiful-bill-act-and-tariffs
Few decisions punish misread facts more than the one families face on college. I set out the numbers I rarely see families shown in Is College Worth It? and in the book, We Need To Talk About Higher Education.