Trump is making Americans poorer
Part 2 of Trump is making American lives dirtier, poorer, and shorter.
Spoiler: This is the second of three posts, each of them devoted to show how the most incompetent president in history is about to make millions of American lives miserable. This post will show how his economic policies will make USA poorer and more inequal.
Before I show how the most incompetent and ignorant president in the history of USA will make USA poorer, let’s see how it looked before the Americans made the worst choice of their lives.
US households have never been so rich as during Biden. And that refers to also middle-class Americans. During Biden, real median US net worth increased by 37%. Also wealth inequality fell since real median US net worth increased for single parents, renters, Black Americans, Hispanic Americans and other groups traditionally in the lower ranges levels of wealth.
Record high median US wealth
Source: Joseph Politano, Aprecitas Economics.
Inequality and poverty in USA increased during Trump 1.0.
During his first term, Trump lowered income and corporate taxes, messed around with tariffs, and worsened the effects of the Covid crisis. As a result, budget deficits and the national debt continued to increase, income inequality and poverty rates increased.
During Trump inequality grew faster than before:
The numbers are revealing. The distance separating America’s highest and lowest income brackets grew by almost 9 percent annually under Trump. That growth is faster than in previous periods. From 1990 to 2015 growth was about 7 percent — a period that included three recessions.
By 2019, housing was unaffordable for workers in 70 percent of the country. The average family is now far less able to afford homeownership than it was just a few years ago. Almost 30 million people lacked health insurance in 2019. One-quarter of Americans have no retirement savings. And one widely cited report from the Federal Reserve found that 40 percent of the country could not afford an emergency expense of $400.
Trump increased poverty
The list does not end there. A full 20 percent of American children now live in poverty, a number that increased under the Trump administration. At the same time, education, which is supposed to help overcome these problems, is becoming increasingly unaffordable as tuition outpaces income growth.
Inequality and poverty in USA will increase during Trump 2.0.
Inequality and poverty in USA will increase due to at least three reasons. Tariffs, deportations, and cuts in social security. Silencing science and censoring R&D are steps in the same direction but will be dealt with in the last of these three posts.
Tariffs
Tariffs hurt low-income households more since they will have to pay higher prices on the goods that are imported in full or contain a lot of imported components. Since Trump is moving backwards and forwards with the tariffs, it is difficult to say by how much they will be increased. He obviously doesn’t know himself. But it seems that he is trying to be “tougher” than during his first term so we can use that as a lower base line for our guesses.
Justin Callais has a nice post about Trump’s tariffs . He refers to two studies which assesed the impacts of tariffs during Trump 1.0 on prices, income and employment. A study by Amiti et. al. found that Trump’s 2018 tariffs causes a decrease in real income of $1.4 billion per month by the end of 2018. And contrary to what Trump thought and claimed, employment suffered. A study from the Federal Reserve showed that manufacturing producion costs increased and manufacturing employment fell.
that U.S. manufacturing industries more exposed to tari ff increases experience relative reductions in employment as a positive e ect from import protection is o set by larger negative e ects from rising input costs and retaliatory tariff s. Higher tariffs are also associated with relative increases in producer prices via rising input costs.
The last study also took into account that other countries retaliates. Most of the recent analyses now, assume that other countries will retaliate in response to Trump’s tariffs. Here’s a part of a list of studies from The Tax Foundation.
Trump decreases GDP
Source: The Tax Foundation.
Tariffs increase the cost of imported goods, including food, clothing, and household items. For example, grocery bills could rise by 17.5% to 25%, and car parts could cost hundreds of dollars more
As the budget lab at Yale shows the price level rises by 1.7-2.1%, which corresponds to an average per household consumer loss of $2,700-3,400 in 2024 dollar prices. This hurts low-income households more than others. Households in the second-lowest income decile would lose 3% of disposable income in the short term due to tariffs, compared to a 1.1% loss for the top decile.
Insufficient data does not allow for assessing the impact on households in the lowest income decile.
Distributional impacts of Trump.
Source: The budget lab at Yale university
In dollar terms, lower-income households face an average annual cost increase of $1,300, middle-income households $2,100, and the top 10% $5,400. However, these costs consume a far larger share of budgets for poorer families.
Trump’s obsession with tariffs appears to be the result of a stupid misunderstanding of the accounting identity GDP = C + I + G + X - M. Where C, I, G, X, and denote private consumption, private investment, government purchases, exports, and imports respectivel. But imports are deducted only to take into account the C, I, and also G to some extent include imports. I covered this in an old post where I mocked Statistics Sweden for making a making the same mistake in one of their news briefs on GDP.
But apparently, Trump’s team believes that imports reduce GDP. Justin has another post about Trump’s stupid misunderstandings.
Deportations
Deportations of immigrants, illegal or not, will disproportionately impact labour-intensive industries with cascading effects on household incomes and economic inequality. Agriculture, construction and hotels and restaurants are typical work places for people at risk of being deported. Illegal immigrant workers make up 14%, 13%, and 7% of the workforces in those industries respectively. Deporting them will lead to labour shortages and higher prices. Low-income households will suffer most from the expected increase of housing costs by 10% and higher grocery prices.
Cutting and messing with Social security
The Mump administration’s messing with Social security programs have caused panic. Musk’s lies about millions being paid to dead people and otherwise being abused by fraudulent people have been debunked a number of times. That did not stop Musk and his DOGE puppies to sabotage the Social Security Administration (SSA). Now, people applying for benefits or trying to change the where their benefits are paid out, need to verify their identities online or in person. A lot of elderly people will find that difficult to do. And there is no point trying to call the SSA because lots of its staff have been fired.
We do not know yet how the Mump administration will change social security program, or Medicare and Medicaid. All we know is that they want to save lots of money. And since reliance of social security is strongly correlated with socio-economic status, the cuts will hit low-income households as Paul Krugman shows in this post.
Source: Social Security Administration (from Krugman’s post).
And as Krugman shows here, social security is not a drag on the US economy.
And if you want to the US economy under Democratic presidents with Republican presidents, look here. Especially interesting is Biden vs Trump. Well, maybe not for Trump because job growth was higher during Biden, the unemployment rate was lower during Biden, manufacturing jobs increased during Biden and decreased during Trump, manufacturing investments increased during Biden and decreased during Trump. And more.
