While campaigning for a second term in office, President-elect Donald Trump declared “tariff” to be his “favorite word” and “the most beautiful word in the dictionary.” He regularly said he would use tariffs to raise federal revenue and increase jobs and manufacturing in the United States.
For example, at an August campaign rally, Trump suggested broadly placing tariffs on imports from overseas, saying, “We’re going to have 10 to 20% tariffs on foreign countries that have been ripping us off for years.”
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About a year before that, during a Fox Business interview, Trump said: “I do like the 10% [tariff] for everybody. The problem with the 10% is that some countries are much bigger abusers than others.”
In addition, in February, when asked in another Fox Business appearance to confirm a report that he was considering a 60% tariff on imports from China, he said, “No, I would say maybe it’s going to be more than that.”
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He also has proposed enacting legislation requiring commensurate retaliatory tariffs if any nation puts a tariff on U.S. exports that is higher than the tariff imposed by the U.S. on the same products.
Multiple analyses do show that increasing tariffs, or applying new ones, would produce more federal revenue. However, economic experts have predicted that Trump’s proposals also would raise costs for Americans and reduce the country’s economic growth.
We’ll explain how tariffs work, what Trump has proposed and what experts say about it, and what happened during Trump’s first term.
How tariffs work
A tariff is a customs duty, or tax, levied on goods and services that are imported or exported.
In the past, tariffs were used by countries primarily as a way to bring in revenue for the government. “Tariffs are now typically used to protect domestic industries or as leverage in trade negotiations and disputes,” according to the nonpartisan Congressional Research Service.
Tariff collections made up less than 2% of federal revenue in fiscal year 2023, for instance.
When defending his plans, Trump repeatedly, and wrongly, has insisted that the tariffs he has in mind will be paid by other countries.
“We’re going to be a tariff nation. It’s not going to be a cost to you. It’s going to be a cost to another country,” Trump told supporters at a Wisconsin campaign rally in September.
“I’m not raising your taxes. I’m raising China and all of these countries in Asia and all over the world, including the European Union by the way, which is one of the most egregious,” he assured the crowd. “And they’re going to have to pay a price now because we’ve been supporting them for a long time and it’s no longer sustainable.”
But the soon-to-be president is wrong.
As we’ve written before, importers in the U.S. pay the tariffs in the form of custom duties, which are collected at ports of entry by the U.S. Customs and Border Protection. And in many cases, those importers pass their increased costs on to consumers through price hikes.
“A tariff is a tax paid by the U.S. importer, not a foreign country or the exporter,” Jonathan Gold, vice president of supply chain and customs policy for the National Retail Association, was quoted saying in a November analysis by the retail trade group. “This tax ultimately comes out of consumers’ pockets through higher prices.”
The NRF report said that tariffs floated by Trump – specifically a universal tariff of 10%-20% on imports from other countries plus a 60%-100% tariff on imports from China – would affect prices on apparel, toys, furniture, household appliances, footwear and travel goods. On those six product categories alone, Americans’ spending power could be reduced by between $46 billion and $78 billion annually, according to the retail association.
More Economic Fallout
Other economic analysts also predict that heftier tariffs would lead to higher costs for Americans.
The center-right American Action Forum estimated that a 10% tariff on all U.S. imports would raise a household’s costs by between $1,700 and $2,350, on average, each year. On top of that, a 60% tariff on imports from China would cost an additional $1,950 annually, the group said.
According to an analysis by the nonpartisan Tax Policy Center, a basic 10% tariff, plus a targeted tariff of 60% on Chinese goods, would increase net federal revenues by about $2.8 trillion over a decade. Those tariffs also would shrink households’ average after-tax incomes by about $1,800 in 2025 and reduce domestic imports by about $5.5 trillion from 2025 to 2034.
“All income groups would see similar percentage declines in after-tax income as a result of Trump’s tariffs, ranging from 1.7 percent to 1.9 percent,” the TPC said. “The biggest exception: Those with the highest incomes, whose after-tax incomes would fall by about 1.4 percent.”
Alternatively, a 20% worldwide tariff and a 60% tariff on Chinese goods “would increase household taxes by an average of nearly $3,000 in 2025,” lowering average after-tax incomes by 2.9%, the TPC said in another analysis.
The Peterson Institute for International Economics, a nonpartisan think tank, estimated that an across-the-board tariff of 20%, combined with a 60% tariff on China, would cause a typical middle-income household’s costs to increase by more than $2,600 a year — up from a loss of $1,700 in after-tax income based on a 10% and 60% tariff on worldwide and Chinese goods, respectively.
“But this estimate is very conservative,” PIIE senior fellow Alan Wm. Wolff, a former deputy director-general of the World Trade Organization, wrote in September. “It does not take into account the fact that domestic producers will likely raise their prices if a US global tariff takes effect, and it does not take into account other costs to American wage earners when foreign retaliation results in the loss of higher-paying jobs producing goods and services to sell abroad. These consequential effects substantially increase the costs to the US economy.”
In addition, the left-leaning Center for American Progress said that a middle-income family could expect to pay $2,500 more each year if the 10% and 60% tariff proposals are implemented. That increase would grow to $3,900 annually if a 20% basic tariff goes into effect, the CAP said.
Meanwhile, Erica York, a senior economist and research director at the pro-business Tax Foundation, told the fact-checking website Verify in September that a 20% tariff on all imports and a 60% tariff on imports from China could even lead to an average increase in costs of more than $6,000 per household.
Furthermore, York has written that at least a dozen analyses of Trump’s tariff proposals have determined that such policies “will have a harmful effect on the American economy,” meaning a reduction in economic growth, or real gross domestic product.
She noted that there is one outlier study – from the Coalition for a Prosperous America, a nonprofit representing domestic producers – that suggests that a universal 10% tariff would grow U.S. economic output and incomes. But York said that a “scathing review” of that analysis found that its “researchers manipulated a trade model, against all economic evidence, to produce positive results from higher trade taxes.”
Trump’s First Term
During his first term in office, Trump increased tariffs on imports of numerous products, including steel, aluminum, washing machines, solar panels and several goods from China.
The Tax Foundation said that the Trump administration’s tariffs in 2018 and 2019 amounted to “nearly $80 billion worth of new taxes on Americans … one of the largest tax increases in decades.” President Joe Biden’s administration kept most of those tariffs in place and then raised tariffs on an additional $18 billion worth of Chinese goods in May.
“As of March 2024, the trade war tariffs have generated more than $233 billion of higher taxes collected for the US government from US consumers,” the Tax Foundation said. “Of that total, $89 billion, or about 38 percent, was collected during the Trump administration, while the remaining $144 billion, or about 62 percent, has been collected during the Biden administration.”
Based on the revenue collected, U.S. households, on average, have experienced an annual tax increase of $200 to $300 per household, the Tax Foundation said — calling that an underestimate because the figure does not factor in “lost output, lower incomes, and loss in consumer choice the tariffs have caused.”
Further, the tax policy group said, “many economists have evaluated the consequences of the trade war tariffs on the American economy, with results suggesting the tariffs have raised prices and lowered economic output and employment since the start of the trade war in 2018.”
One December 2021 review, by economists at Princeton and Columbia universities, found that, because of the trade war between the U.S. and China that started in 2018, “US consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the US and China, although not by large magnitudes relative to GDP.”
Also, a January 2024 paper led by MIT economist David Autor found that the 2018-2019 tariff war between the U.S. and its trading partners failed to bring back jobs to “the heartland,” as Trump had intended. It said import tariffs applied by the U.S. “on Chinese and other foreign goods had neither a sizable nor significant effect on US employment,” but the tariffs that foreign nations applied in retaliation “had clear negative employment impacts particularly in agriculture, and these harms were only partly mitigated by compensatory subsidies” to U.S. farmers affected by the tariff war.
That was preceded by a December 2019 paper from two Federal Reserve Board researchers that found the 2018 tariffs led to relative reductions in manufacturing employment and relative increases in prices for producers.
“For manufacturing employment, a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs,” the paper said. “For producer prices, the effect of tariffs is mediated solely through rising input costs.”
What Will Trump Do Now?
What Trump will do once he takes office in January remains unclear. Some analysts are taking his tariff proposals seriously, while others have said he may just be using the threat of higher tariffs as a way to negotiate better trade terms with other nations.
For example, in the Nov. 14 episode of “Derisky Business,” a podcast about economic security issues related to national security and foreign policy, Emily Kilcrease, director of the Energy, Economics and Security Program at the bipartisan Center for a New American Security, said that she believes Trump is serious about increasing tariffs on China.
Kilcrease said that Trump’s team has “unfinished business” from his first term in office because “they did not get everything they wanted” from the Phase One trade deal with China that was signed in 2020. “Since they didn’t get everything they wanted, they’re going to have to ratchet up the pressure here,” she said. “So, I do think the 60% tariffs are something that are likely going to be an early administration action.”
During the same podcast, however, Kilcrease’s co-host, Geoffrey Gertz, a senior fellow in the Energy, Economics and Security Program at CNAS, said that he thinks Trump’s suggestion for a basic 10% tariff on imports from other countries is more of a negotiating tactic.
“My sense is here it’s more the idea of using tariffs as a negotiation leverage,” he said. “Come in and say, ‘Yes, we’re doing 10% tariffs.’ That kind of puts a new baseline in place for negotiations to get back down to a more reasonable tariff level.”
U.S. trading partners would not be pleased, Gertz said, “but maybe it sparks off lots of negotiations and we end up with a reasonable outcome.”
Kilcrease said that Gertz’s outlook is “the best case scenario,” if the plan is indeed to promise raising tariff rates “en route to a negotiated outcome that substantially improves the terms of trade with some of our key partners.” But she advised that it’s also possible that Trump is being serious about a blanket 10% tariff on imports.
“I’m not ruling out the possibility that just a hard reset on some of these economic terms of trade would be a fine landing zone for the Trump team, and, again, negotiations may just be a bonus,” she said.
Another reason to take Trump’s tariff proposals seriously: The revenue may be necessary to help offset at least some of the costs of Trump’s other policy proposals, such as an extension of expiring tax cuts in 2017’s Tax Cuts and Jobs Act.
As Yahoo! Finance’s Washington correspondent, Ben Werschkul, noted in October, “Donald Trump is making dramatic new tariff pronouncements almost daily that one could be tempted to dismiss as bluster, but it is increasingly clear that he needs a titanic level of duties to fulfill the promises of his second-term agenda.”
He added: “Indeed, a detailed analysis of Trump’s plans from the nonpartisan Committee for a Responsible Federal Budget found that one of the only sizable offsets to his over $10 trillion in campaign trail promises is tariffs — which are projected to raise about $2.7 trillion.”
Another issue is whether Trump is authorized to implement all of his proposals.
The U.S. Constitution gives Congress the power to collect taxes and duties, while Congress, at times, has delegated the responsibility of setting tariffs to presidents who are negotiating trade agreements or for other specific reasons.
But some, like Wolff, the PIIE senior fellow, have argued that Trump would not be able to unilaterally set an across-the-board tariff on imports.
“The Constitution is clear,” Wolff wrote in another September blog post. “For the constitutional originalists and for the justices who give deference to executive branch agencies alike, there is no scope for determining that Trump can impose blanket tariffs (the equivalent of taxes on the American people). The wholesale transfer of authority from the Congress to the president would be going too far.”
On the other hand, in October, a team of experts at the Center for Strategic & International Studies made the case that Trump does have the ability to set a wide range of tariffs, including a tax of up to 20% on imported products.
“As of today, there are multiple legal authorities that Trump could rely on to justify the imposition of increased tariffs, including many that Trump already availed himself of during his presidency,” the CSIS team wrote. “These include Sections 232 and 301, the International Emergency Economic Powers Act (IEEPA), Section 122 Balance-of-Payments Authority, and Section 338 of the Tariff Act of 1930. While Section 232 requires an investigation by the Department of Commerce and Section 301 requires an investigation and determination by the Office of the U.S. Trade Representative (USTR), these procedural niceties could be accomplished in relatively short order by cabinet officials, particularly since undue delay could put them at risk of getting fired.”
It’s also possibile that Congress, which will be controlled by Republicans next year, could turn Trump’s tariff ideas into legislation that could be passed and signed into law.
Still, NBC News reported earlier this month that businesses and industry groups opposed to Trump’s stated plans are preparing to challenge his policies in court, if necessary.
“During his first term, Trump faced little resistance from the courts and Congress for tariffs he placed on imports of steel and aluminum from certain countries and thousands of products coming from China,” the news outlet said. “But Trump’s latest proposal would be much broader, covering every product from every country, raising more pressing questions about whether he’s overstepping the power he’s been given by Congress, according to lawyers and business groups.”
So, much about Trump’s tariff plan is still to be determined.
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