ReutersDonald Trump has promised to significantly increase tariffs on foreign goods imported into the United States if he is re-elected president.
He promised to impose tariffs, a type of tax, of up to 20% on products from other countries and up to 60% on all imports from China. He even talked about imposing a 200% tax on some imported cars.
Tariffs are a central part of President Trump’s economic vision, seeing them as a way to grow the U.S. economy, protect jobs and increase tax revenue.
During his campaign, he argued that these taxes “are not a cost to you, they are a cost to other countries.”
This is almost universally considered misleading by economists.
How do tariffs work?
In reality, a customs duty is a domestic tax that is levied when goods are imported into a country, proportional to the value of the import.
So if you import a car worth $50,000 (£38,000) into the US that is subject to a 10% duty, you will be charged $5,000.
This fee is physically paid by the domestic company importing the goods, not by the foreign company exporting the goods.
In that sense, it is simply a tax paid by US domestic companies to the US government.
Throughout 2023, the United States imported approximately $3.1 trillion in goods, representing approximately 11% of U.S. GDP.
And tariffs on these imports brought in $80 billion that year, about 2% of total U.S. tax revenue.
In contrast to upfront bills, the question of where the final “economic” burden of tariffs falls is more complex.
If U.S. importers pass the cost of tariffs on to people who buy their products in the U.S. in the form of higher retail prices, the economic burden falls on U.S. consumers.
It is said that if U.S. importing companies absorb the costs of tariffs themselves and do not pass them on, they will incur an economic burden in the form of lower profits than they would otherwise have received.
Or foreign exporters may have to lower their wholesale prices by the amount of the tariff to retain U.S. customers.
In that scenario, exporting companies would bear the economic burden of tariffs in the form of reduced profits.
All three scenarios are theoretically possible.
However, economic studies on the impact of new tariffs imposed by President Trump during his first term from 2017 to 2020 suggest that most of the economic burden was ultimately borne by U.S. consumers. has been done.
A study conducted by the University of Chicago in September 2024 told a group of prominent economists that “imposing tariffs means that a significant portion of the tariffs will be borne by consumers in the countries implementing the tariffs through price increases.” We asked them whether they agreed with the statement that . Only 2% opposed it.
price increase
Let’s use a concrete example.
President Trump imposed a 50% tariff on imports of washing machines in 2018.
Researchers found that as a direct result, the value of washing machines increased by about 12%, equating to $86 per unit, with U.S. consumers paying a total of about $1.5 billion more annually for these products. It is estimated that
Even if a future Trump administration were to raise import tariffs further, there is no reason to think that the outcome would change in terms of where the economic burden would fall.
The nonpartisan Peterson Institute for International Economics estimates that President Trump’s new tariff proposals would reduce Americans’ incomes, with the impact ranging from about 4% of the poorest fifth quintile to the richest fifth quintile. It is estimated that about 2% of the total
The think tank estimates that a typical U.S. household in the middle of the income distribution stands to lose about $1,700 each year.
Using a different methodology, the center-left think tank Center for American Progress estimates losses for middle-income households would be between $2,500 and $3,900.
Various researchers have also warned that if the U.S. imposes large-scale additional tariffs again, there is a risk that domestic inflation will spike again.
Impact on employment
But President Trump is using a different economic justification: that the tariffs will protect and create jobs in the United States.
“Under my plan, American workers will no longer worry about losing their jobs to foreign countries. Instead, foreign countries will worry about losing their jobs to the United States,” he said. He spoke during the campaign.
The political background for President Trump’s tariffs is particularly relevant after the North American Free Trade Agreement (NAFTA) was signed with Mexico in 1994 and China joined global trade, leading to the loss of U.S. manufacturing jobs to countries with lower labor costs. This has been a long-standing concern about being exposed. Organized in 2001.
In January 1994, when NAFTA went into effect, there were just under 17 million manufacturing jobs in the United States. By 2016, this had fallen to around 12 million people.
But economists say it’s misleading to blame trade for the decline, arguing that rising levels of automation are also a key factor.
And researchers who studied the impact of President Trump’s first round of tariffs found no real positive impact on overall employment in protected U.S. industrial sectors.
President Trump imposed a 25% tariff on imported steel in 2018 to protect American producers.
By 2020, total employment in the U.S. steel sector was 80,000, still lower than 2018’s 84,000.
Impact on trade deficit
President Trump has criticized the United States’ trade deficit (the difference between the value of everything the country imports and the value of its exports that year).
“The trade deficit is hitting the economy hard,” he said.
In 2016, just before Trump took office, the total goods and services deficit was $480 billion, equivalent to about 2.5% of U.S. GDP. Despite his tariffs, by 2020 it had increased to $653 billion, about 3% of GDP.
Part of the explanation, economists say, is that President Trump’s tariffs increase the international relative value of the U.S. dollar (by automatically reducing demand for foreign currency in international trade), thereby increasing the value of U.S. exporters’ products. This means that global competitiveness has declined.
Another factor contributing to the failure to close the trade deficit is the fact that tariffs can sometimes be avoided in a globalized economy with multinational corporations.
For example, the Trump administration imposed a 30% tariff on solar panels imported from China in 2018.
In 2023, the U.S. Department of Commerce said Chinese solar panel manufacturers moved assembly operations to countries such as Malaysia, Thailand, Cambodia, and Vietnam, and shipped the finished products from those countries to the U.S., effectively avoiding tariffs. submitted evidence.
Some economists, like Jeff Ferry of the US lobbying group Coalition for a Prosperous America, support Trump’s tariff plan as a way to revitalize US industry, but they are in the minority among experts.
Oren Kass, president of the conservative think tank American Compass, said tariffs could incentivize companies to keep more of their manufacturing operations in the United States, which would lead to national defense and supply chain security. claims.
And while the Biden/Harris administration has harshly criticized President Trump’s tariff extension proposal, it has maintained many of the tariffs that President Trump implemented since 2018.
It has also imposed new tariffs on imports such as electric vehicles from China, justifying them on grounds of national security, U.S. industrial policy, and unfair domestic subsidies from the Chinese government.
