Donald Trump has proposed imposing a 60% tariff on all Chinese imports and a 10% tariff on all other imports.
Tariffs are federal taxes imposed on an importer of foreign goods. Tariffs are usually targeted at certain goods that a government believes are being priced unfairly to protect businesses located within the imposing country. As general tariffs, Trump’s proposal would have a much broader impact.
Tariffs are a “great” way for the federal government to raise revenues because they are “hidden”. You don’t see them disclosed when you buy goods at the cash register, like a state and local sales tax. You don’t get a bill for them or report them on a tax form. The importer pays the tariff and passes the expense on to the consumer through higher prices.
U.S. businesses also use tariffs on imports as a rationale for increasing their prices on U.S. – produced goods, to match higher prices on foreign goods.
Trump’s suggestion that tariffs could possibly replace the federal income tax won’t work. The federal government collects about $2.2 trillion in income taxes. Imports to the U.S. for 2023 were about $3 trillion. When tariffs are imposed, that import number will fall. There isn’t enough scope to raise the same revenue with tariffs.
Our income tax system is progressive, so the bottom 20% of taxpayers pay little or no income taxes. These same taxpayers spend most of their income on consumer goods, so a lot of the tax burden will fall on them. The taxpayers in higher income tax brackets spend less of their total income on consumer goods and save and invest more, so the tariffs will have less impact on their lifestyle.
According to the Tax Foundation, the Trump and Biden tariffs already in effect raises about $79 billion per year, or about $625 per U.S. household. The Trump proposal is estimated to raise another $524 billion. According to the Peterson Institute for International Economics, the additional cost for a middle-income household would be about $1,700.
According to the Tax Foundation, the economic impact of the proposal is negative, Gross Domestic Product would shrink by at least 0.8% and employment would fall by 684,000 full-time equivalent jobs.
Foreign governments would surely retaliate for the tariffs, reducing exports of U.S. products for those increased prices.
Donald Trump is not a traditional Republican and does not support free trade. According to economists, free trade results in higher employment and reduced prices. It also usually results in friendlier relations among nations. Trump’s policies are isolationist and unfriendly.
We have a world marketplace today. Look at the labels on clothing, toys, fruits, appliances, vegetables, meat, and electronic products. They are almost all produced outside the country or have imported components.
Congress has delegated broad powers to the President to impose these tariffs, so it seems likely they will become effective when Donald Trump is inaugurated as President of the United States.
Now is the time to stock up on foreign goods, before the price increases for the new tariffs next year. It might be a good time to buy that new car, dress, jewelry, or shoes.
It also seems likely Trump’s policies are likely to lead to a global recession, with China emerging as the new global economic leader by engaging in free trade with other countries.