$2,400 income loss per household: How Trump's tariffs on India and others will backfire at home

US President Donald Trump and Indian Prime Minister Narendra Modi arrive to hold a joint press conference in the East Room of the White House in Washington, DC, on February 13, 2025. (Photo by ANDREW CABALLERO-REYNOLDS / AFP)

As US President Donald Trump escalates his protectionist trade policies, fresh academic research has sounded the alarm over their economic fallout. A new report by Yale University warns that Trump’s high tariffs, recently extended to allies such as India and South Korea, will cost Americans dearly, leading to a surge in household expenses and a slowdown in economic growth.

The Yale report was released the same day Trump announced a 25 per cent tariff on Indian imports, alongside threats to penalise countries buying Russian oil, gas, and weapons. According to the findings, US tariffs imposed under Trump are expected to result in an average short-term income loss of about $2,400 per American household.

This loss is largely due to higher prices on everyday goods -- a direct effect of the tariff-induced inflation. The report assumes the US Federal Reserve does not intervene to mitigate the price surge, so the losses reflect inflation rather than falling wages.

“The Trump tariff led to an average effective tariff rate of 18.4 per cent on affected products -- the highest seen in the US since the 1930s,” the Yale researchers noted.

Low-income Americans to feel the worst impact

Trump’s trade war is expected to hit low-income households the hardest. While wealthier families may lose more in dollar terms, poorer households will bear a much heavier burden when measured as a share of their income. On average, low-income families could lose about $1,300 due to the tariffs, which is nearly three times the impact compared to higher earners. In comparison, high-income households are estimated to lose around $5,000, but the effect on their overall financial stability will be far less severe.

Tariffs are also expected to drive up prices in everyday consumer categories, especially those that are essential for working-class families. The Yale report highlights that prices for leather goods like shoes and handbags may jump by 40 per cent, while clothing could become 38 per cent more expensive. Textile products are set to rise by 19 per cent.

Food costs are also projected to increase, with an average hike of 3.4 per cent. Fresh produce, in particular, could see a spike of up to 7 per cent, squeezing household budgets even further. For those looking to buy a car, prices are expected to climb by around 12.3 per cent, which means an extra $5,900 for a new vehicle.

In short, Trump’s tariffs could make daily life significantly more expensive for average American families, especially those already struggling to make ends meet.

Trump’s tariffs threaten US growth and jobs

The report further warns of macroeconomic consequences beyond consumer inflation. If tariffs persist, they could reduce US GDP growth by 0.5 percentage points in 2025-26 and result in 500,000 job losses by the end of 2025.

Unemployment is also projected to increase by 0.3 percentage points in 2025, with continued pressure into the following year. A separate JP Morgan analysis confirmed that the tariffs are pushing inflation higher, dampening consumer demand, and slowing GDP growth.

While tariffs do generate revenue for the US Treasury -- an estimated $167.7 billion in 2025 -- economists say the costs far outweigh the benefits. JP Morgan estimates that the average household will essentially be hit with a $1,300 tax hike due to these tariffs.

Tariffs widening trade deficit

Contrary to Trump’s objective of narrowing the US trade deficit, his tariff strategy appears to be backfiring. As firms rush to import goods in advance to avoid future price hikes, overall US imports have increased, Yale researchers note. Meanwhile, exports have barely moved, exacerbating the very deficit Trump promised to fix.

The Congressional Budget Office (CBO), America’s top fiscal watchdog, has echoed these concerns. It recently warned that Trump’s tariffs could shrink the US economy relative to its potential performance without them. And though tariffs boost short-term government revenue, those gains are being offset by the larger revenue loss from Trump’s tax cuts, the CBO found.

The bottom line, according to both Yale and JP Morgan, is clear: Trump’s trade war is draining American wallets, driving up the cost of living, killing jobs, and weakening growth, especially for working-class families.

India in the crosshairs

India finds itself directly in the firing line of Trump’s protectionist agenda. With a 25 per cent tariff now imposed on Indian imports, trade tensions between New Delhi and Washington are feared to rise. Trump’s rhetoric around penalising countries for buying Russian oil and military gear has further aggravated the situation, particularly at a time when India is trying to balance strategic autonomy with economic resilience.

India said it had “taken note” of the statement and underlined its continued commitment to a fair bilateral trade agreement with the United States. The government also pointed out that negotiations between the two countries had been underway for several months. Officials warned that this could affect bilateral trade negotiations and may even trigger retaliatory duties. New Delhi has also highlighted the contradiction in US policy, where Washington seeks Indian support on China, while simultaneously punishing Indian exports.