Former President Donald Trump has proposed a new approach to fix America’s economic issues: imposing massive tariffs on foreign goods entering the United States. He claims that tariffs can create more factory jobs, lower food prices, decrease the federal deficit, and even promote world peace. Trump has a history of utilizing tariffs during his presidency, targeting various goods including solar panels, steel, aluminum, and products from China. In his recent proposals, he has suggested a 60% tariff on goods from China and up to 20% on all other imports into the U.S. He has also threatened to impose 200% tariffs on machinery exports by John Deere and 100% on Mexican-made goods.
Despite Trump’s enthusiasm for tariffs, mainstream economists generally view them as inefficient ways for governments to raise money and promote prosperity. They are particularly concerned about the impacts of Trump’s proposed tariffs. A report from the Peterson Institute for International Economics predicts that Trump’s tariffs could significantly harm the U.S. economy, leading to a drop in GDP growth and a rise in inflation. Vice President Kamala Harris has dismissed Trump’s tariff threats, citing a report that estimates a 20% universal tariff would cost the average family nearly $4,000 a year. Despite this, the Biden-Harris administration has continued some of Trump’s tariff policies, including taxes on Chinese goods.
Tariffs are essentially taxes on imports, collected by Customs and Border Protection agents at ports of entry across the U.S. The rates vary depending on the product and can be lower for countries with trade agreements like the USMCA. While Trump claims that foreign countries pay the tariffs, in reality, it is American importers who bear the costs, passing them on to consumers through higher prices. This often results in consumers bearing the burden of tariffs.
Historically, tariffs were a significant revenue source for the U.S. government before the establishment of the federal income tax in 1913. However, as global trade expanded post-WWII, tariffs became less popular. In the current fiscal year, the U.S. government expects to collect $81.4 billion in tariffs and fees, a small fraction of its total revenue. Despite this, Trump aims to reimplement tariffs as a central part of the government’s revenue strategy, particularly to target farm imports and potentially lower food prices.
While tariffs can protect domestic industries by raising the prices of imports, they can also lead to negative consequences. Tariffs are often used to pressure foreign countries on various issues and can sometimes provoke retaliatory actions. Economists generally view tariffs as self-defeating, as they raise costs for companies and consumers, potentially leading to retaliation from other nations. Trump’s trade war had mixed results, failing to significantly impact U.S. employment while damaging sectors that relied on targeted imports. Despite the economic challenges posed by tariffs, Trump’s approach was successful politically, with increased support in regions most affected by import tariffs.
