‘The tariffs are a big tax increase’: Top bank crunches the numbers on how much Americans are paying for Trump’s trade regime

UBS forecasts that current U.S. tariff policies, now at a weighted-average of 13.6% and equivalent to 1.2% of GDP, will significantly impede economic growth and fuel persistent inflation through 2028, potentially adding 0.8 percentage points to core PCE in 2026 and a cumulative 1.9 points by 2028. This tariff-driven inflation is eroding real household income, particularly for lower and middle-income segments, thereby contributing to a "narrowly driven" and "precarious" economic expansion reliant on AI investments and upper-income wealth, with proposals for a "tariff dividend" being economically unsound and effectively regressive.

Analysis

UBS projects current U.S. tariff policies, now at a weighted-average rate of 13.6% (a fivefold increase from 2.5% at year-start), will significantly fuel persistent inflation through 2028. These tariffs, representing 1.2% of GDP, are expected to add 0.8 percentage points to core PCE inflation in 2026, potentially erasing a year of disinflation progress. The cumulative impact could reach nearly 1.9 percentage points by 2028, accounting for almost two-thirds of the remaining gap to the Fed's 2% target.

This tariff-driven inflation is eroding real household income, with 3.5% annualized earnings growth being offset by 3-4% quarterly PCE inflation. Households below the top 20% income bracket, possessing low liquid assets, are particularly vulnerable. This exacerbates a "narrowly driven" and "precarious" economic expansion, largely dependent on AI investments and upper-income equity market wealth, while sectors like residential investment face recessionary conditions.

The proposed "tariff dividend" is economically unsound, as a $2,000 per person payout would cost approximately $600 billion, far exceeding current tariff revenues ($195 billion in FY2025). Analysts emphasize that tariffs act as a regressive tax, driving up consumer prices rather than providing a net household benefit. This feedback loop of tariffs sustaining inflation ultimately weakens real income growth.

Key Decisions for Investors

• Monitor core PCE inflation closely for sustained elevation above Fed targets, as tariff impacts are projected to persist through 2028.
• Evaluate consumer discretionary exposure, particularly to lower and middle-income segments, given eroding real income and precarious economic expansion.
• Assess potential policy shifts related to trade and fiscal policy, recognizing the economic implications of tariff regimes and the unviability of proposed "tariff dividends".