Donald Trump wants to sharply hike taxes on all imports. Economists say Americans would feel the pain.
How do tariffs work?
A tariff is a tax that governments impose on imported goods, typically charged as a percentage of the price and paid by the U.S.-based company or individual that imports the product. There are two main reasons countries adopt them: to raise revenue and to protect domestic industries from foreign competition. Tariffs were the main source of federal revenue in the U.S. from its founding until 1913, when the federal income tax was enacted. They fell out of favor after Congress passed the 1930 Smoot-Hawley Act, which lifted the average import tax rate from 40 percent to 60 percent in a bid to protect American farmers and businesses. Other nations were quick to impose retaliatory tariffs, and U.S. imports and exports plunged by 60 percent, worsening the Great Depression. On the campaign trail in 1932, Democratic presidential candidate Franklin Delano Roosevelt slammed Smoot-Hawley as “the road to ruin,” and after winning the White House, pushed Congress to give presidents greater power to cut or hike tariffs. Tariffs dropped sharply after World War II, when the U.S. and other nations ushered in an era of free trade. And they stayed low for decades—until Donald Trump was elected in 2016.
What did Trump do?
Trump, who called himself Tariff Man, imposed new levies on hundreds of billions of dollars’ worth of imported goods. Most were targeted at China, which he accused of unfair trade practices that threatened U.S. “companies, workers, and farmers.” He levied tariffs of up to 25 percent on what ultimately became $360 billion in Chinese goods, and in 2018 slapped steep tariffs on steel and aluminum imports—including from allies such as the EU, Canada, and Mexico. Trump said his tariffs would boost manufacturing and reduce the U.S. trade deficit, and workers in protected sectors praised his actions. The American worker is “finally getting a shot to compete on a level playing field,” said Mark Goodfellow, head of the steelworkers union’s local in Massena, N.Y. Foreign countries struck back with heavy taxes on American imports: China placed tariffs of up to 25 percent on U.S. goods from soybeans and pork to sneakers.
What was the economic impact?
The U.S. Treasury saw its tariff revenue spike, from $41.6 billion in 2018 to $111.8 billion in 2022. But economists widely agree that U.S. consumers and businesses bore the brunt of the tariffs, with importers passing higher costs on to customers in the form of higher prices. The nonpartisan Tax Foundation estimates Trump’s levies equated to a tax hike for Americans of about $80 billion a year, or $625 per household. The federal government also doled out $23 billion in compensation to farmers who saw exports slump in the trade war, and the U.S. trade deficit—the gap between exports and imports—actually increased. U.S. companies bought less from China, but more from other foreign suppliers.
Did the tariffs help U.S. industry?
Some sectors benefited: Rising steel prices are thought to have created several thousand jobs in the industry. But American businesses that buy steel either had to absorb the higher costs or raise prices, putting them at a disadvantage with overseas firms and leading to the loss of 75,000 manufacturing jobs, according to a 2019 Federal Reserve study. “These tariffs protect my foreign competition rather than protecting me,” James Knott Jr., who runs a wire mesh factory in Massachusetts, said in 2019. President Biden has kept most of Trump’s tariffs in place, saying they’re needed to keep China from flooding the U.S. with state-subsidized, underpriced goods. In September, the Biden administration added tariffs ranging from 7.5 percent to 100 percent on Chinese-made electric vehicles, semiconductors, clothing, and other goods. But Trump is vowing to go much further if he wins the presidency.
What has he proposed?
On the stump, the Republican has promised to slap a minimum tax of up to 20 percent on the $3 trillion worth of goods imported annually into the U.S. He’s also vowed 60 percent tariffs for all Chinese imports, and a 100 percent tax on Mexican-made cars. Trump claims those new levies would spark a manufacturing “renaissance,” create millions of jobs, eliminate the $1.7 trillion annual deficit, and pay for billions in tax cuts. “Tariffs are the greatest thing ever invented,” he has said. Economists call such claims fantastical. A 20 percent global tariff would in theory raise $600 billion a year— far below the $2.5 trillion that comes from individual taxes—but revenues would be lower as imports would decline. Meanwhile, prices would rise across the economy as a result of higher costs, retaliatory tariffs, and scrambled supply chains, killing jobs and costing the typical middle-income household more than $2,600 a year, according to the nonpartisan Peterson Institute for Inter- national Economics. “It’s one of those magical economic proposals that can actually cause inflation and put you into a recession—at the same time,” said David Kelly, chief global strategist at JPMorgan Asset Management.
Would Trump implement his plan?
It’s hard to tell. Many Republicans oppose tariffs and refute his belief they’re an economic cure-all—Trump wants them “to solve every problem but HIV and climate change,” Sen. James Lankford (R-Okla.) said in 2019. But prior congressional acts have granted presidents broad leeway to impose tariffs without lawmakers’ approval, and it’s not clear how much resistance he’d face in any case. Some Republicans downplay Trump’s rhetoric as bluster. “It’s messaging,” said Rep. Dan Meuser (R-Pa.). But many observers say tariff hikes are guaranteed if he returns to Washington. “How big will they be? How disruptive will they be? Who knows,” said Douglas Holtz-Eakin, president of American Action Forum, a center-right think tank. “But Trump is not going to be put under control.”
Golf carts: A plea for tariffs
While economists warn against the perils of high tariffs, some U.S. manufacturers say they can’t come fast enough. The nation’s two biggest manufacturers of golf carts, Georgia-based Club Car and Textron Specialized Vehicles, are lobbying the Biden administration for a 100 percent tariff on Chinese carts, saying they’re being killed by a sixfold rise in cheap imports. They say their Chinese competitors are government-subsidized and have “substantially and systematically undersold” their vehicles, causing a “sharp decline” in U.S. production. Producers in other industries likewise complain about competing against underpriced imports— but those who rely on Chinese materials see tariffs very differently. Brett Jackrel of Florida-based Moto Electric Vehicles, which makes golf carts using some Chinese parts, said new import taxes would spike his costs and hurt sales. “Is it going to affect sales? Absolutely,” Jackrel said. “Consumers will pay for tariffs.”
