The Trump administration in the US is contemplating different methods of trade protection. Whether through tariffs or a border tax, trade protection is a consumer tax. The tax distorts markets to persuade consumers to buy more expensive domestic goods they do not want, instead of cheaper imported goods they do want.

A trade protection tax may protect jobs in inefficient domestic industries. Those jobs are paid for through a lower real standard of living (the cost of the tax). From a presentation perspective, a trade protection tax can be made to look attractive.

The benefit of "1,000 American jobs saved" is more tweetable than the cost of a "0.2% increase in prices". Economically, the costs nearly always outweigh the benefits, but in a world of hashtag economics, reality often loses out to fake news.

A consumer tax has the potential to redistribute living standards. Different people buy different sorts of goods and services. Thus, different people will be affected in different ways by a consumption tax. Looking at trade in value-added data and different consumption patterns, economists can get a sense of which groups in America suffer most under a trade protection tax.

If a trade protection tax were applied by product, then trade protection against something like food imports would do far more harm to the living standards of low-income Americans than to high-income Americans.

Low-income Americans spend a relatively high proportion of their incomes on food. The impact of trade protection on food would be almost 70% more serious for the lowest-income Americans than for the highest income Americans.

It is a different situation for cars. Low-income Americans do not buy new cars. Trade protection against car imports therefore has little direct consequence for a low-income American. However, high-income Americans have a strong inclination to buy new cars, and as their cars are either imported or contain a high number of imported components, the impact of trade protection in the auto sector hurts high-income Americans over three times as much as it hurts low-income Americans.

Looking across the spectrum of products for which we have data, tariffs on products other than cars will consistently hurt low-income Americans more than they will hurt high-income Americans. This perhaps helps to explain the increasing concern expressed by Republican as well as Democrat politicians in the US about the consequences of tariffs for "working Americans" (although the damage to retired Americans, who are disproportionately low income, is potentially more severe).

What happens if the trade protection is not applied to specific sectors, but is instead a blanket tax on a country or group of countries? Again, there is a difference as to whether the auto sector is included or not.

For low-income Americans, a universal trade protection tax against China would be about twice as damaging as a tax against the eurozone, and about three times as damaging as a tax against Mexico. That may seem surprising, but Mexican goods have a high US component to them, meaning that "Made in Mexico" is more "Made in Mexico with US help".

For high-income Americans, a trade protection tax against China is about twice as damaging as a tax against Mexico — higher-income Americans are less inclined to buy goods made in China than are low-income Americans.

A trade protection tax is a direct tax on the living standards of Americans. For most goods other than cars, it is a tax that will be paid disproportionately by low-income Americans.

Paul Donovan is global chief economist, UBS Wealth Management

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