Former president and Republican presidential nominee Donald Trump imposed numerous tariffs, especially on China, while in office and recently suggested imposing 10 or even 20 percent tariffs on all imported goods. Meanwhile, President Joe Biden, despite his criticism of Trump’s foreign and economic policy, has largely maintained Trump’s tariffs and has even introduced new ones. Democratic presidential candidate Kamala Harris criticized Trump’s tariff plans as a “sales tax,” but does not appear to oppose Biden’s tariff policy.
Given that U.S. and foreign trade barriers steadily declined between the Franklin D. Roosevelt and Barack Obama presidencies, it’s reasonable to wonder why tariffs have recently become a favored tool of American politicians of both parties.
Tariffs are taxes on imported goods. In the early years of the American Republic, tariffs represented a significant portion of government income. As government spending increased and other taxes were levied to compensate, tariffs became less important. By the early 1900s, tariffs represented only a small portion of government revenue.
Although Trump has suggested replacing the income tax with tariffs, this isn’t possible. In 2023, the individual income tax generated $2.2 trillion in federal revenue, while Americans imported $3.1 trillion in goods. Based on those figures, tariff rates would need to be 71 percent to generate sufficient revenue. Tariffs that high would lead to a drastic reduction in imports, as businesses would stop trying to sell goods to the United States. Other countries would likely impose tariffs of their own to retaliate, harming American businesses that export goods.
If tariffs aren’t a reliable source of government funding, what is their purpose? These days, tariffs are often used to combat allegedly unfair trade practices by other countries. Tariffs may also be suggested to reduce the trade deficit or for national security purposes. While these goals may, at times, be laudable, it is critical to consider the impact on American consumers and confirm that the purported benefits really do outweigh the costs.
Tariffs increase costs for American consumers because they cause companies to raise their prices, leading to more expensive household items. Tariffs on imports from China imposed by the Trump administration and expanded by the Biden administration have cost American taxpayers $230.0 billion so far—the equivalent of $1,750 per U.S. household. An overall 10 percent tariff, meanwhile, would cost $495.7 billion per year, the equivalent of $3,942 for every American household. Meanwhile, tariffs haven’t reduced barriers to U.S. exports or led to much change in the behavior of foreign governments.
If tariffs are costly for American consumers and not very effective as foreign policy tools, why do politicians support them? The answer likely lies in how the costs of tariffs are distributed. The benefits of tariffs accrue to a small number of domestic companies that benefit from reduced foreign competition, while the costs are spread across the entire population of American consumers.
Thus, while tariffs are a net negative on an economic basis, there is no visible wronged interest group to speak out against them, creating a collective action problem. To solve this problem, NTU serves as the “Taxpayers’ Lobbyist” to protect the millions of American consumers who are affected by bad trade policy.
For more context on tariffs, check out the NTU articles below:
Protectionist Group Gets Tariffs All Wrong (September 2024)
Import Taxes Inflate Back-to-School Prices (August 2024)
New Tariffs Could Boomerang and Reduce Exports by Nearly 20 Percent (July 2024)
Universal Baseline Tariff: A Self-Destructive Reaction to a Make-Believe Problem (July 2024)
Replacing the Income Tax With Tariffs Is a Fantasy (June 2024)
Attention: This Is Who Pays for Tariffs (June 2024)
Behind Trump’s Proposed $4,000 per Household Tax Increase (February 2024)
Trump Promises “Massive” Tax Increase if Returned to Office (August 2023)
Sanders-Hawley Tariff Would Be Biggest Tariff Hike Since Smoot-Hawley Tariff Act of 1930 (May 2023)
Steel and Tariffs: How Bad Trade Policy Hurts Americans (November 2021)
Biden’s Tariff “Trial Balloon” Should Be Popped (September 2021)
Flawed New Carbon Tariff Bill Belongs in the Dustbin (August 2021)
Tariffs Are Bad. Import Quotas Are Worse. (April 2019)
Reciprocity for Disaster (February 2019)