Republican former president Donald Trump once called himself a “Tariff Man” with the aim of boosting government revenue.
As he campaigns for the White House again in 2024, he is proposing new tariff hikes on all US imports.
Analysts estimate that these new tariffs could add around $500 billion annually to consumer costs. Additionally, other proposals, such as tax-cut extensions, could further inflate the national deficit.
Trump’s key economic policy proposals include implementing at least a 10 percent tariff on imports from all trading partners, which he describes as “a ring around the country.” This would affect approximately $3 billion worth of goods based on 2023 import levels. Additionally, Trump has suggested imposing tariffs of 60 percent or higher specifically on Chinese goods, stating that “You screw us and we’ll screw you.”
The consequences of these policies could be significant. Tariffs on imports from all trading partners could lead to increased costs for consumers, potentially amounting to billions of dollars annually. Higher tariffs on Chinese goods could exacerbate tensions between the two countries and impact global trade. Additionally, such measures may prompt retaliatory actions from affected trading partners, further complicating international relations and trade dynamics.
The tariff revenues would be used to offset extensions to the sweeping tax cuts passed in 2017 under Trump’s administration’s Tax Cuts and Jobs Act (TCJA), as certain provisions are set to expire after 2025.
While the TCJA lowered income taxes for many Americans, it has faced criticism for primarily benefiting the wealthy.
During a recent rally, Trump promised a broad tax cut aimed at the middle class, upper class, lower class, and business class alike. Additionally, he has pledged to roll back President Joe Biden’s electric vehicle subsidies, among other policy reversals.
According to a recent report from the Peterson Institute for International Economics (PIIE), implementing a 10 percent across-the-board tariff, along with higher tariffs specifically targeting China, could result in an annual tax increase of at least $1,700 for the average American household.
The report highlighted that these tariffs would impose a significantly higher financial burden compared to previous tariff measures enacted by the Trump administration up to late 2019. It estimated that consumers could face an additional $500 billion in costs per year due to these tariffs alone.
This substantial increase in consumer costs is projected to account for at least 1.8 percent of the GDP, as indicated by the nonpartisan institute based in Washington. Additionally, the report emphasized the potential negative repercussions, including foreign retaliation and decreased competitiveness, resulting from such tariff policies.
According to a recent report from the Congressional Budget Office (CBO), extending Trump’s tax cuts for the next decade would contribute an additional $4.6 trillion to the deficit. This updated projection surpasses the previous estimate by the CBO, which had forecasted a $3.5 trillion increase through 2033.
Policymakers could face the challenge of mitigating the deficit impact by considering measures like reducing spending. Additionally, renewed trade tensions may counterbalance any potential benefits from tax reductions, as indicated by an April analysis from Oxford Economics.
According to senior fellows Kimberly Clausing and Mary Lovely at the Peterson Institute for International Economics (PIIE), Trump’s policy proposals redistribute tax burdens, placing less weight on the wealthy and shifting more onto lower-income individuals within society.
According to PIIE estimates, fully extending TCJA provisions would result in approximately one percent of GDP in tax cuts, with the majority of benefits skewed towards the upper echelons of income distribution.
Moreover, tariffs function as a form of consumption tax, disproportionately affecting lower-income households, which allocate a larger portion of their income towards spending compared to their wealthier counterparts, who can save more.
The PIIE report characterizes the Trump agenda’s fiscal policy as regressive, with tax cuts predominantly favoring higher-income brackets and only partially offset by regressive tax increases.
Oxford Economics forecasts a potential increase in inflation of up to 0.6 percentage points should Republicans intensify tax cuts and tariffs while repealing the clean energy provisions of Biden’s Inflation Reduction Act.
The International Trade Commission found that previous Trump tariffs placed a significant burden on US importers.
Implementing widespread tariff increases poses the risk of retaliation and strained relationships with US trading partners, caution experts.
While retaliation from trading partners could involve tariffs of comparable magnitude, China may opt for a less-than-proportional response, as per past behavior, suggests Oxford Economics.
The combination of these factors is expected to have a substantial impact on trade and US GDP.
Increased import expenses are anticipated to reduce incomes and consumption, while retaliatory tariffs could diminish the competitiveness of US industries, according to Oxford Economics.
The PIIE report underscores the importance of maintaining strong relationships with international partners and allies, especially amidst numerous global conflicts and significant collective action challenges.
In summary, the proposed policies carry significant national security risks.
