AILSA CHANG, HOST:
Well, after months of threats, proclamations, negotiations and delays, President Trump's tariffs on goods from roughly 90 different countries went into effect today. Many imports will now cost the importer fees of at least 10%, often 15- or 20- or 25% or even higher. The tariffs arrive at a point where the U.S. economy has already been showing some signs of strain. There's been a slowdown in hiring and GDP growth. Some consumers are spending more cautiously. Outstanding credit card debt is up, and even that doesn't quite reflect the reality for most American households, according to Heather Long, the chief economist at Navy Federal Credit Union. She's here to explain. Welcome.
HEATHER LONG: Thanks for having me.
CHANG: So you have called our current situation a so-called K-shaped economy. Why the letter K?
LONG: Ah, yes.
CHANG: What do you mean by that?
LONG: I know. It sounds like "Sesame Street."
CHANG: (Laughter).
LONG: But basically, the top 20% of American earners are doing pretty well. The stock market's up. Their home values have gone way up in the last few years. They are not that concerned about these tariffs because they have the cash on hand to be able to absorb any price increases. It's a really different situation for the bottom 80%.
CHANG: Yeah.
LONG: They don't have a lot of extra room to absorb an extra potentially $2,000 in the next year in higher tariff costs.
CHANG: OK, so what you lay out is that this economy, essentially, is being propped up by the country's very top earners, the top 10%, and their spending splurges, right?
LONG: That's exactly right. These are people who earn $250,000 a year or more. They account for basically half of the spending in the economy.
CHANG: Wow.
LONG: So when those folks are doing well, when they're going on fancy vacations and throwing lavish parties and weddings, the American economy tends to grow a lot. And when they're not doing well, we fall into a recession. And it's become increasingly reliant over time on the top, more and more.
CHANG: Well, that's what I was going to ask you, because I always just assume the top earners usually are the main spending power in any given economy in America. So what is different now specifically?
LONG: Yeah.
CHANG: They're propping up more of the economy now than ever before?
LONG: It has. It has become more concentrated over time. And then, it wasn't like this for several years after the pandemic. You know, people across the income spectrum received those stimulus payments.
CHANG: Yeah.
LONG: People were going on vacations with their family. They were buying fancy toaster ovens, stimulating the economy and enjoying life. And now that that extra savings is gone, we're back to a situation where the bottom 80% does not have any extra room in their budget.
CHANG: Say more about the bottom 80%, because you're talking about both middle-income and lower-income households. What are you seeing happening there?
LONG: So we've seen over 10% of Americans who have student loans who are now defaulting and severely delayed in repaying those student loans, credit card delinquencies and auto loan delinquencies at the national level even higher than they were in most cases pre-pandemic. And what we're seeing at Navy Federal Credit Union is people are uncertain about the tariffs and how high prices could go, but they're also really uncertain - could I lose my job?
CHANG: Yeah.
LONG: I call it the frozen labor market. How are you going to get a job right now?
CHANG: You call it a frozen labor market that's now seeing cracks.
LONG: That's right. We've gone not just from having no hiring, which is pretty much where it's been for the past several months. Now we are seeing a growing number of industries that are actually laying people off in the past three months. And it's not just the federal government, it's also sectors like manufacturing, the white-collar jobs and even retail jobs. I keep telling people, you know, usually your backup is I'll try to get a job at Target, and even a lot of retailers are starting to actually do some layoffs.
CHANG: So are you concerned that with even more tariffs taking effect today, we are likely going to see even more financial strain on this wide range of earners? You're talking about middle- and lower-income earners.
LONG: Definitely. If you're the Amazons of the world, you've maybe been absorbing some of these tariff costs or having your suppliers absorb some of them, but that can't go on forever. And what we're starting to see in this fall is companies are saying we either have to pass those tariffs on to consumers and squeeze them, or we're going to have to turn around and lay people off in order to protect our profit margins.
CHANG: That is economist Heather Long. Her analysis appears in a Washington Post op-ed. Thank you very much, Heather.
LONG: Thanks for your time. Transcript provided by NPR, Copyright NPR.
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