Why Trump’s Tariff Promises Will Be Hard to Keep: NPR

Donald Trump made a big new promise last week about tariffs — the latest in a series of outsized promises to use tariffs to benefit the United States.

On his social media platformhe stated that he wants to create what he calls the “External Revenue Service” to collect tariffs and other revenues from foreign sources.

To be clear, this name itself is misleading: the overwhelming number of rates are paid off American companies importing goods not from external foreign sources.

The announcement is the latest in a long line of promises Trump has made about tariffs, which are at the center of his economic strategy. Those promises about tariffs will be hard to keep, economists say — and some even work against each other.

The goals of tariffs: revenue, jobs and the war on drugs

One of Trump’s big tariff promises is more revenue. On the campaign trail, man told a crowd in Georgia that “we will take hundreds of billions of dollars into our treasury and use that money to benefit American citizens.”

He has also repeatedly said that tariffs would boost American manufacturing. In the same speech in Georgia, Trump said he would impose tariffs on cars made in Mexico. “We’re going to put a 100% tariff on every single car that comes across the Mexican border and tell them the only way they can get rid of that tariff is if they want to build a factory right here in the United States with you who operate that plant.”

By one recent press conferencehe also said that tariffs could curb illegal immigration and drugs.

“Mexico needs to stop allowing millions of people to pour into our country,” he said. “We’re going to put very serious tariffs on Mexico and Canada, because Canada, they’re also coming through Canada, and the drugs coming through are record high.”

These tariff targets are cross-cutting

Sounds good – a simple trick to tackle drugs, debt and jobs. But it’s hard to see how it could all happen at once.

“You can have a tax on revenue or you can have a tax on limitation, but you can’t have both,” said Erica York, vice president of federal tax policy at the Tax Foundation, a right-leaning economic think tank.

Since a tariff is a tax that US importers pay on goods from other countries, the tariff provides some revenue.

But Trump also wants tariffs to boost production. The idea here is to make, for example, foreign cars more expensive, meaning that Americans would buy fewer foreign cars.

This is where a major contradiction comes in: If Americans buy fewer foreign cars, customs revenue falls.

And that’s not the only contradiction York sees in Trump’s policies. If Trump threatens tariffs on Mexico or Canada and succeeds in getting them to crack down on immigration or drugs – that is, if Mexico or Canada changed their policy to get Trump not to tariff them—that would mean no additional revenue and no additional protection for American workers.

“The way the incoming Trump administration talks about it is that they can have their cake and eat it too. But that’s just not the case,” York said.

NPR asked the Trump team to explain how tariffs can achieve all of Trump’s stated goals. They did not respond specifically, saying instead that tariffs will “protect American manufacturers and working men and women from the unfair practices of foreign companies and foreign markets.”

Higher prices and uncertain earnings

Trump’s tariff proposal goes far beyond what he imposed in his first term. He has revised tariffs of up to 60% on Chinese goods, plus proposed 25% on Canada and Mexico. He has even proposed a 10% to 20% cap on all imports.

But even new, high tariffs would not raise the kind of revenue Trump appears to want. Trump has often pointed to the 19th century, a time before the federal income tax, as an era he admires.

“It will make our country rich,” he said on one December press conferenceand speaks admiringly of the days of former President William McKinley. “That was when we were proportionally the richest,” Trump said.

During the campaign, Trump even suggested that he would replace the income tax with tariffs.

Experts have said that would be impossible. Last year, rates amounted to only 2% of the government’s income.

According to one analysis from the Peterson Institute for International Economics, the maximum revenue that Trump’s threatened tariffs could generate would be $780 billion. That’s about a third of total income from income and corporate taxes, and it also doesn’t take into account the economic effects of higher tariffs, such as higher prices and slower growth, not to mention retaliation from abroad.

Kimberly Clausing co-authored the analysis and also worked in the Biden Treasury Department. She emphasized that the rate hikes would hurt lower-income Americans the most through higher prices — while helping higher-income people who receive Trump’s proposed tax cuts.

“I think a cynical reading of what the Trump administration is proposing is a bunch of regressive tax cuts that help those at the top of the distribution, which are paid for with the regressive consumption tax that’s going to hit the poor the hardest ,” she said.