August 23, 2023
Most candidates would not make a huge tax hike a center piece in their presidential campaign, but Donald Trump is not your typical presidential candidate. In case people missed it, Trump floated the idea of imposing 10 percent tariffs across the board on all imports with a group of people who have served as his economic advisers.
It’s not clear whether this tariff is supposed to be in addition to current tariffs or a replacement. In the case of items coming in from China, it would actually imply a cut from the current tariff rate, which averages 19 percent now. It’s also not clear whether it would apply to imports of services, most of which are not subject to tariffs.
Recognizing these ambiguities, let’s say that the tariff is an addition to current tariffs and applies to all goods imports, but not services. This can give us a rough estimate of how much Trump’s tariffs will be increasing taxes for people in the United States.
The Congressional Budget Office projects that we will import $49.3 trillion of goods and services over the decade from 2025 to 2034. (I increased the projection for 2033 by 3.4 percent, the prior year’s growth rate, to get the figure for 2034.) If we assume that 81.8 percent of these imports will be goods (the share for the first half of 2023), then goods imports will be $40.3 trillion over this period.
The tariff will have some impact on both the quantity of imports and the prices received by the countries that export to us. I have assumed that the quantity of imports falls by 10 percent in response to the tariffs, while the price of imports falls by 1.0 percent. Here is the picture for the amount of revenue – the taxes – that we will be paying year by year as a result of Trump’s tariffs.
Source: Congressional Budget Office and author’s calculations.
The sum for the period is a bit under $3.6 trillion. It is a bit more than 0.9 percent of GDP over this period. This would be a substantial sum out of people’s pockets ($11,000 per person), and would likely be a substantial drag on GDP growth.
Note: An earlier version assumed import prices dropped by 10 percent in response to the tariffs. I had meant to assume that the price decline was 10 percent of the tariff, or 1 percent of the pre-tariff price.