Earlier this year, I examined how 25 percent tariffs on a range of Chinese goods would impact smartphone users, particularly low-income consumers who rely on their phones as their primary means of Internet access. As new data comes out about the impact of tariffs, it’s becoming clearer that these tariffs will hit low-income consumers particularly hard.
To illustrate this point, let’s look at the humble thermostat. If you grow up living through Virginia summers like I did, you quickly learn what a potent combination heat and humidity can be. Stepping out of that sticky mess into a cool home makes you appreciate what a marvel modern air conditioning can be. While many of us take heating and air conditioning for granted, for millions of low-income consumers, home energy costs eat up a big chunk of their budgets.
It’s for this reason that home energy waste can be such a problem. A surprising amount of money is wasted because homes are heated and cooled in an inefficient manner. Think of all those hours you pay to heat and cool an empty home while you’re at work and the kids are at school. While middle- and upper-income households may spend as little as 1 to 5 percent of their incomes on heating and cooling, it is estimated that low-income consumers often spend anywhere from 10 to 35 percent of their incomes home energy bill. For consumers whose budgets are already stretched thin, wasting money on heating and cooling can make it even harder to make ends meet.
This is where the humble thermostat comes in. These relatively simple devices -- turning on the heating and cooling when it’s needed, turning it off when it’s not -- play a key role in regulating home energy costs. In recent years, technology companies have begun to market dozens of different “smart” thermostats to help make heating and cooling more efficient. Thanks to smart thermostats, consumers in Minnesota can return home to pre-warmed homes in the winter or turn up the heat remotely from work if their kids get sent home from school early due to an impending snow storm.
The savings can be significant, with smart thermostat makers like Nest and Honeywell claiming more than $100 in annual household savings. Smart thermostat prices running in the $150-200 and with many utility companies offering rebate programs, the upfront cost can get paid for in a relatively manageable amount of time.
According to International Trade Commission statistics, the majority of thermostats in the United States come from China. Hiking up the price of smart thermostats by 25 percent through tariffs makes it less likely that price-conscious consumers will be able to justify that up-front cost, leading to less efficient homes. It’s for this reason that tariffs on smart thermostats from China could have an especially negative impact--not just on household managers who are thinking of buying one, but even on those who don’t. The costs of energy waste hit everyone in the form of higher energy prices and the environmental impacts stemming from excess power generation to run all those air conditioners and HVAC systems.
While middle-and-upper income consumers may not feel this pinch, low-income consumers will. The indirect impacts of higher prices on thermostats is just one way that low-income consumers, in particular, are affected by tariffs. As President Trump considers slapping yet more tariffs on Chinese goods, these impacts should give the Administration pause and, hopefully, lead it to reconsider this harmful trade policy. Fortunately, the Administration recently announced that it is considering excluding certain products from tariff action. Let's hope that it considers the effects that anti-trade policies will have on the most vulnerable and exclude thermostats from further tariffs.