Trump and the K-shaped economy... Tariffs burden bottom 10% of US households three times more than top 10%

The U.S. economy is currently navigating a period of profound transformation, marked by a resurgence of protectionist policies, geopolitical tensions, and the disruptive influence of artificial intelligence on labor and capital. The familiar landscape of globalization is rapidly dissolving, and the expression "K-shaped" has become a fitting descriptor for the current economic reality in America. This term signifies a widening chasm, where the affluent are experiencing significant gains, particularly through stock market appreciation and increased consumption, while those at the lower end of the income spectrum face mounting hardship due to inflation and stagnant wages.

While income inequality is not a new phenomenon in the United States, its exacerbation under the Trump administration presents a significant concern. Trump's rhetoric, which blames global trade for the nation's trade deficit, industrial competitiveness issues, and manufacturing job losses, resonated with workers who felt left behind by globalization. Despite economic counterarguments, his platform secured him a return to the presidency. His administration implemented a 10% across-the-board tariff on all imports, with additional tariffs ranging from 10% to 49% on countries running trade surpluses with the U.S. Although a Supreme Court decision in February 2026 deemed these reciprocal tariffs unlawful, Trump invoked Section 122 of the Trade Act, allowing for temporary tariffs during periods of severe international balance of payments deficits.

Complementing the tariff hikes is another cornerstone of "Trump economics": tax cuts. The "One Big Beautiful Bill Act" (OBBBA), passed in July 2025, extended the income and corporate tax cuts from Trump's first term. This legislation also involved restructuring welfare spending by reducing eligibility for low-income health insurance and food assistance programs, while increasing defense spending and the national debt ceiling. Further tax relief was provided through federal income tax exemptions on overtime pay and tips, along with additional tax reductions for the elderly and middle class.

The critical issue is that these tariff increases and tax cuts have demonstrably negative impacts on income distribution, thereby deepening inequality. Congressional Budget Office analyses project that the OBBBA's combination of social welfare reductions and tax cuts for the wealthy will lead to an average annual decrease of 3.1% in after-tax income for households in the bottom 10%, while the top 10% will see a 2.7% increase between 2026 and 2034. The tariff hikes further disadvantage low-income households, who are more reliant on imported goods. A Yale University Budget Lab analysis indicates that the tariff burden on the bottom 10% of households is approximately three times greater than that on the top 10%. If Section 122 of the Trade Act were to remain in effect, the disposable income of the bottom 10% could decrease by 2.1% annually, compared to a 0.7% decrease for the top 10% during the same period. Moreover, Trump administration labor policies, such as the reduction of the federal minimum wage and the appointment of pro-employer members to the National Labor Relations Board, are criticized for weakening workers' rights and economic stability, further deteriorating the living conditions of working-class households. Evidence from the Federal Reserve Bank of Atlanta's Wage Growth Tracker confirms this widening inequality under the Trump administration. During the post-COVID recovery under the Biden administration (2021-25), wage growth for lower-income workers outpaced that of higher-income workers, reducing wage inequality. This trend was also observed during Trump's first term (2017-21). However, following the establishment of Trump's second term in 2025, wage growth for low-wage workers significantly slowed, widening the gap between the top and bottom earners. This reflects a slowdown in job creation within the labor market, closely linked to the uncertainty caused by rapid tariff increases. Ultimately, the Trump administration's economic policies are exacerbating inequality in both the primary distribution of labor market income and the secondary distribution of disposable income. Compounding this, data from the Bureau of Labor Statistics reveals that labor's share of U.S. GDP fell to 53.8% in the third quarter of 2025, the lowest level since statistics began in 1947. This stark reality partly explains the victory of the progressive Democrat candidate, Mumdani, in the New York mayoral election last November, who campaigned on "affordability," rent freezes, and taxing the wealthy.