While many economists have pointed out that tariffs are usually paid for by consumers in the form of higher prices – studies have found that Trump’s plans would cost an American middle-class family between $1,200 and $2,600 per year – the president-elect considers tariffs a universal economic and political tool.
He sees tariffs as leverage in negotiations, as a means to protect U.S. industries and as a source of revenue to pay for other initiatives. During the campaign, Trump suggested he would use the additional revenue from new tariffs to lower taxes and pay off debt. At one point he even floated the idea of eliminating income tax and replacing it with tariffs altogether – an idea that economists have quickly dismissed.
Looking at the final budget for fiscal year 2023, existing tariffs generated $80 billion in revenue, a mere drop in the bucket compared to almost $2.2 trillion in individual income tax revenue. Last year, U.S. goods imports amounted to $3.1 trillion. Applying just the simplest math suggests that only a universal tariff of 70 percent would generate enough revenue to replace individual income tax – and that’s just in theory, because imports would obviously crumble in that scenario.
The Tax Foundation estimates that Trump’s actual tariff plans would raise approximately $2 trillion in additional revenue – over the next decade, however. And that is not accounting for dynamic effects, such as retaliatory tariffs from other countries, which would further diminish revenue gains from the proposed tariffs.
