Marshall Helmberger

One of the biggest economic concerns in the current presidential campaign centers on Donald Trump’s promise to launch a major trade war with virtually every U.S. trading partner, including our allies, should the voters return him to the White House. That would be a huge mistake, which is why economists are increasingly negative about the economic consequences of a Trump presidency.
Trump has argued for high tariffs going back to the 1980s, under the dubious theory that by allowing other countries access to the U.S. market without high tariffs, the U.S. was allowing trading partners to build up large trade deficits, making America poorer in the process. In fact, Trump’s arguments then, and his arguments for even more aggressive tariffs today, show his fundamental misunderstanding of how tariffs function.
There is a place for tariffs when they are used to provide temporary protection to allow a new industry to become established in a country, or to protect a domestic industry from an unfair trading practice, such as dumping. This was the case with steel tariffs against China, first imposed under the Obama administration that have continued at various levels to this day.
At one time, tariffs were a significant source of government revenue in the U.S. At times, tariffs accounted for almost 90 percent of federal revenue. But since the early 20th Century, the U.S. has relied on the far more progressive income tax to generate the bulk of government revenues. Fairer taxation is one of the factors that allowed for the growth of the U.S. middle class.
Tariffs are an extremely regressive form of taxation, very much like a sales tax, that fall hardest on the working class, because lower-and-middle-income families spend a much larger percentage of their income on consumer goods, which are typically the subject of tariffs when those goods are imported.
Because of that, tariffs have traditionally been very unpopular with the majority of Americans. Indeed, high tariffs imposed on the colonies by the British Parliament in the late 1700s were one of the primary grievances that led to revolution.
Contrary to Trump’s claim, tariffs are without question a tax on the consumers within the country that levies them, so when he says he’ll impose a 20 percent tariff on all imported goods, and even higher tariffs on some products from places like China, he’s talking about what would amount to the largest tax hike on working families in generations.
When Vice President Harris calls his plan a “Trump sales tax,” she’s not far from wrong. Indeed, the conservative-leaning Tax Foundation has concluded that Trump’s tariffs would amount to a $524 billion tax increase on Americans, the vast majority of which would fall on low and middle-income families. According to the Tax Foundation, his plan would cost an estimated 624,000 U.S. jobs and shrink the GDP by at least 0.8 percent. And those estimates do not include the effects of the global trade war, and likely global recession, that his actions would inevitably spark.
If the U.S. could impose tariffs in a vacuum, one might be able to argue that the economic pain tariffs would cause most Americans could be justified if it increased U.S. manufacturing as companies opted to produce goods here at home. But we don’t live in a vacuum and as we saw in 2018 when Trump launched a trade war with China, things quickly devolved into tit-for-tat countervailing tariffs on U.S. goods, including U.S. farm commodities, which sent farm economies into a tailspin and even led to a decline in U.S. manufacturing and a net loss of jobs.
What’s more, subsequent research has shown that the tariffs imposed by Trump were paid, dollar for dollar, by U.S. consumers through higher prices for affected products. The Tax Foundation’s analysis found that Trump’s earlier trade war cost the typical U.S. family about $625 a year in higher costs for consumer items. And Trump is now proposing far higher and broader tariffs on virtually everything we import into the U.S., which will undoubtedly cost the typical American family thousands of dollars a year.
Trump’s tariff plan would be the largest wealth transfer from working class Americans to the mega-wealthy we’ve ever seen. Trump has claimed that his tariff plan will help pay for extending his 2017 tax cuts, over 80-percent of which went to big corporations and high-income individuals. He’s claimed that his tariffs will raise trillions of dollars, eliminate the deficit and enable the U.S. to fund many services, like child care, we can’t currently afford— and suggests other countries will pay for it all. Trump is either delusional or he’s lying. None of this will happen, just like Mexico didn’t pay for Trump’s wall.
If tariffs were really a way to raise tax revenues from foreign countries, every country would impose high tariffs. They don’t do so, because governments don’t pay tariffs. The private companies that import products pay the tariffs and they pass those costs on to their customers. This is Economics 101, and all the economic research on Trump’s 2018 trade war with China show that’s exactly how it played out.
Trump is proposing to use highly regressive tariffs to raise money on the backs of U.S. consumers, to fund more tax cuts for billionaires like him. It’s a shell game and Trump is anticipating that his supporters are too slow to figure it out. No wonder he says he “loves the poorly educated.”