How Did the 2018–19 U.S. Tariff Hikes Influence Household Spending?

Abstract

5 Jun Nie is a senior economist, Shu-Kuei X. Yang is a data engineer, and Alice von Ende-Becker is a research associate at the Federal Reserve Bank of Kansas City. This article is on the bank’s website at www.KansasCityFed.org U.S. tariffs on imports from other countries rose significantly in 2018 and 2019, particularly on imports from China. The average tariff rate on imports from China increased by more than 15 percentage points from January 2018 to December 2019 and affected more than $350 billion of imported goods. Although higher tariffs may raise costs for both foreign and domestic firms, recent studies suggest most of the burden fell on U.S. businesses and consumers due to higher prices and fewer imports (Fajgelbaum and others 2020; Amiti, Redding, and Weinstein 2019, 2020). Tariffs do not affect all categories of goods evenly, nor do all households spend the same share of their income on tariff-affected goods. As a result, the ultimate effect of tariff increases on household spending may differ across households. However, measuring these effects is challenging, as it requires combining two distinct data sets that define goods categories differently. The Consumer Expenditure Survey administered by the Bureau of Labor Statistics provides detailed data on hundreds of household spending categories, but these categories generally do not match the descriptions of goods in trade data from the U.S.