Trump’s Tricky Tariff ’Treat’ is Scary!
If you’re worried about inflation and rising prices, can you afford to pay $2600 more per year for the things you buy every day because of Donald Trump’s increased tariffs?
While Trump says exporting countries pay the tariff, he’s wrong. Tariffs are paid by the importing US business to the US government. That increases costs for those businesses. And those increased costs are either passed on to consumers or reduce the businesses’ profit margin.
An overwhelming majority of economists say increased tariffs will be bad for our economy. We’ve looked at a variety of reports and studies, opinion pieces and analyses, and economists say Trump’s plan ranges from nonsense to disasterous.
Higher tariffs hurt American businesses and consumers. Goldman Sachs recently warned that Trump's tariff plan could make inflation higher in 2025 by as much as 1.2%. And the Peterson Institute for International Economics predicts Trump’s new tariffs would cost the typical household an additional $2,600 per year in higher costs and slower growth. (Inflation is on everyone’s mind, but a recent Yahoo Finance article estimates inflation over the past three years added about $468 per year in costs for the average household. That’s obviously way less than the impact tariffs could have.)
But wait, there’s more … besides higher prices and inflation, higher tariffs could easily result in trade wars as other countries retaliate against our exports. We’ve seen that response before and we know what it leads to: a reduction of US exports, leading to reduced US production, job losses and a reduction in hours worked. The Federal government might also need to offer subsidies. During the 2018-’19 trade war, US farmers received subsidies that equalled about 92% of the tariffs collected during that period. How will the federal government pay for these subsidies? Any income from the increased tariffs will be eroded.
Second, how much money could the government get from increased tariffs? Would it be enough to reduce or eliminate income tax, or provide money to fund needed programs or reduce the deficit? Well in 2023, we imported goods worth more than $3 trillion and existing tariffs delivered ONLY about 2% of total federal tax revenue. For tariffs to fully replace income taxes, they would have to be at least 70%. That is quite higher than the 10% (or 20%; we’re not sure which number Trump is stuck on) with even more dire consequences for the US economy and consumers.
Before we get too excited about the prospect of lower - or no - federal income tax, or jump on the bandwagon to “make other countries pay,” we need to pay attention to what economists are saying about Trump’s tariff plan. We can’t afford his scary nonsense.
---Guest insights by Carolann