From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.
This week, Donald Trump unilaterally enacted a sweeping array of policies to radically reshape our nation’s tariff system on what he called “Liberation Day.” In addition to his protectionist ideological motivations, Trump explicitly stated that one goal of these tariffs was to raise revenue for his costly fiscal agenda. Trump claimed that these tariffs would bring in “trillions and trillions” of dollars, while his Trade advisor Peter Navarro promised they would raise an additional $600 billion annually, or $6 trillion over ten years. But in reality, these tariffs will only raise a fraction of that amount while inflicting large economic costs along the way.
The sheer scope of Trump’s latest actions is staggering. A 10% tariff will be applied on all goods, with roughly 60 nations facing substantially higher rates, including many of the United States’ biggest trading partners such as the European Union (20%), Japan (24%), and China (54%). The new tariffs will raise the average tariff rate nearly ten-fold, from 2.5% to 22% — a level not seen since 1910. If these tariffs remain in place, the consequences for our economy will be severe: Industries reliant on exports will face much higher costs for products and materials, which they will pass onto consumers through higher prices. Meanwhile, export-reliant industries will face steep retaliatory measures from other countries. Hundreds of thousands of jobs will be lost. Households will be forced to spend more and more on everyday goods from groceries to clothes. Our economy will almost certainly shrink.
The White House’s shoddy revenue methodology completely ignores these economic consequences. To arrive at their $6 trillion estimate, the administration seems to have applied a roughly 20% rate — consistent with the size of the average tariff increase — to the $3.3 trillion in goods imported last year. But in reality, every dollar of tariff revenue collected will come with roughly 50 cents in lost economic value, which partially offsets any gains. This “deadweight loss,” as it is referred to in economic terms, represents the lost value in the economy when tariffs artificially inflate prices past their market value and is primarily borne by consumers via higher prices. As the price of imports rises, consumers will lower or shift their consumption, reducing the volume of total imports, shrinking the broader economy, and ultimately lowering not just tariff revenue but income and payroll receipts as well.
Omitting these dynamics results in a massively inflated estimate. For example, one alternative estimate for all of Trump’s tariff actions — without including their broader economic impacts — only projects an additional $3.1 trillion in revenue over 10 years. After adding in the impact on the broader economy through job and income losses, this falls to just $2.6 trillion. And this will continue to fall further once other countries begin to implement retaliatory measures that damage the economy. Moreover, neither estimate includes the cost of “compensating” certain constituencies for the economic pain caused by the tariffs. During his first term, Trump offered farmers a $23 billion bailout to offset the harm of his trade policies, something he plans to do again this term with an even bigger price tag — which immediately will cannibalize any revenue the tariffs generate.
Ultimately, Trump’s trade policy takes money out of working Americans’ pockets while offering them little to no benefit. The revenue generated from these tariffs will not be enough to offset his proposed tax cuts for the rich, let alone the rest of his costly legislative agenda. Rather, these aimless trade measures only serve to impose broad, sweeping trade barriers without any clear strategic goal or consistency, leaving American consumers and businesses to pay the price.
According to a Congressional Budget Office report released last week, the U.S. Treasury will reach the “X-date” — the point at which it can no longer meet its financial obligations without breaching the debt limit — by August or September 2025.
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