Trump says he would impose a 10% tariff applied across all foreign imports on top of any existing tariffs, as well as a 25% tariff on Canada and Mexico. The revenue, he says, would offset proposed tax cuts. He has even proposed eliminating the federal income tax and replacing it with tariff revenue.
Trump has also called for a tariff of 60% or higher on Chinese imports. During his presidency, Trump leaned into tariffs — particularly on China — as one of his key foreign policy tools. Biden kept Trump’s tariffs in place when he took office.
But the effectiveness of the tariffs Trump imposed against China in his first term is, in an economic sense, difficult to sell: In December 2019, Bloomberg Economics estimated that Trump’s trade war with China during his first term cost the U.S. economy $316 billion.
What experts say: Tariffs are, functionally, taxes levied on importers. When importers are taxed, the price of goods tends to increase, and that cost falls on the American consumer. Economists and think tanks say Trump’s tariff proposals could exacerbate foreign trade hostilities, and one of the results would likely be tariffs on American exports. Experts say it could also fuel inflation as U.S. consumers bear the burden of higher costs.
An analysis by the Center for American Progress, a left-leaning think tank, says Trump’s 10% across-the-board tariff would result in a roughly $1,500 annual tax burden to the typical household. That estimate is similar to an analysis released in May by the Peterson Institute for International Economics (PIIE), a nonpartisan think tank that found the proposal would add a $1,700 annual tax burden to middle-income American households.
The authors of the PIIE analysis wrote, “In practice, no study of the Trump tariffs has found any evidence that U.S. tariffs result in lower prices for U.S. importers. On the contrary, study after study has shown that U.S. tariffs levied since 2017 have instead been fully ‘passed through’ to American buyers.”
In terms of the tariffs’ potential effectiveness in offsetting tax cuts, experts say it would be unlikely to fully replace the revenue lost from Trump’s proposed cuts to tax rates. In fact, it would increase the deficit, according to the American Enterprise Institute (AEI), a right-leaning think tank. A June 17 post by Alex Brill, a senior fellow at AEI said, “Simple math reveals this is infeasible from a budgetary perspective. Basic economics suggests that if the US imposed massive tariffs, imports would slump, deficits would soar, and a recession would be likely.”
A June 19 analysis by The Cato Institute, a libertarian think tank, said Trump’s tariff plans are not “a good way for governments to raise revenue” and are also “mathematically implausible even with radical spending cuts.”
When asked during a lengthy interview by Time on April 30 if he’s comfortable with tariffs raising prices and contributing to inflation, Trump said, “I don’t believe it’ll be inflation. I think it’ll be lack of loss for our country.”
The reasoning behind Trump’s view on tariffs is that foreign producers, in a desperate attempt not to lose market share in the U.S., will lower their prices to offset the impact of the tariffs. That would, in theory, pay the tariff out of their profits, thereby avoiding a tax on American consumers.
But Trump’s previous tariffs haven’t worked out that way: A Federal Reserve study from October 2019 found that the positive impacts of tariffs are offset by both retaliatory tariffs on U.S. goods and the higher costs that American companies shoulder to import supplies. The study also found that the Trump-era tariffs also didn’t boost U.S. manufacturing.
The Moody’s analysis projects that a tariff on nearly all imported goods would raise the costs to businesses, which would put downward pressure on growth and productivity. Those conditions would result in inflation and the American consumer will face higher prices, according to Moody’s.
