Why your tax cut is now almost entirely wiped out by tariffs
Many American families may find themselves no better off this year as their tax cut will be almost entirely wiped out by higher costs from the Trump administration's tariffs on Chinese imports, economists are saying. And if tariffs on Mexican products go into effect starting next week, the typical American consumer could end up in the hole by thousands of dollars.
The math works like this: The Tax Cuts & Jobs Act delivered tax savings to the average American family of about $930 per year, according to the Tax Policy Center. But so far, the tariffs alone on Chinese imports are adding costs of $831 for the average family in the U.S., according to economists at the New York Federal Reserve.
In 2019, the typical American family -- meaning a family in the middle of the income distribution, earning about $56,000 per year -- is only ahead by about $100.
Mexico tariffs
Even that small gain could be wiped out beginning next week. The Trump administration is threatening to slap tariffs on imports from Mexico, starting with a 5% tariff beginning on Monday and escalating to 25% by October, unless Mexico stems the flow of migrants reaching the U.S. southern border.
Mr. Trump has called the tariffs "beautiful," but he also repeatedly misstates how tariffs work, erroneously insisting that China and Mexico are paying the tariffs. In truth, tariffs are paid by the importers, which means American businesses such as Walmart and Costco are paying the tariffs to the U.S. government. Those U.S. companies then must either swallow the cost -- lowering profits -- or pass on the tariff costs to consumers.
One produce supplier told CBS This Morning that every American will feel the impact of tariffs on Mexican imports because they'll pay more at the supermarket for everything from blackberries to cucumbers.
"Tariffs are taxes paid by American businesses and consumers, not foreign governments," Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation, said in a Friday statement. "If we see further escalation in the trade war, it will be much more difficult to avoid higher price tags on a wide range of products."
The typical American family could face additional costs of $1,700 per year if the tariffs on Mexican imports reaches the threatened 25% threshold, Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, told Bloomberg News, which earlier reported on the impact of tariffs versus the tax cut benefit.