Trump's tariff dream falls short of trillion-dollar hopes

The Economist unveils in a recent article that US President Donald Trump's bold proposal to replace income taxes with tariffs has hit a major snag. Initially promising to raise vast sums by imposing border levies, Trump’s vision of a tariff-driven US economy now faces the reality of lower-than-expected revenue, economic distortions, and rising doubts about the feasibility of his grand plan.

However, tariffs are not without their drawbacks. Economists argue they distort trade and often end up burdening domestic consumers rather than foreign producers. A 2020 study by Mary Amiti of the Federal Reserve Bank of New York found that nearly all of Trump's first-term tariffs were ultimately absorbed by U.S. companies through lower margins and by consumers through higher prices. Trade agreements with countries like China and Britain have already reduced tariff levels, limiting the revenue they can generate. Despite this, tariffs are still contributing significant sums, with gross collections reaching $47 billion by May 13, about $15 billion more than the previous year.

While some, including Trump’s trade advisor Peter Navarro, estimate that tariffs could raise $6 trillion over the next decade, independent projections are far lower, ranging from $140 billion to $290 billion annually. These estimates take into account the negative effects on import demand and the reduced income and payroll tax receipts.

Even with these figures, Trump’s tariff plans would not generate enough revenue to offset large tax cuts, particularly for those earning under $200,000. Additionally, tariffs would rely on a narrow and volatile tax base, making them unsuitable for funding the government’s current, much larger spending needs. The proposal may also inadvertently increase American reliance on Chinese production, a scenario most politicians would prefer to avoid.

By Naila Huseynova