Trump's Tariffs: Economic Impact and Historical Analysis

Trump's Tariff Threats

• President Trump has considered imposing tariffs under various legal frameworks:
  • International Emergency Economic Powers Act (IEEPA):
    • On Canada, Mexico, and China related to fentanyl.
    • On all countries related to an economic national emergency.
  • National security tariffs on autos, auto parts, steel, and aluminum from all countries.

Weighted Average Applied Tariff Rate

• The weighted average applied tariff rate on all imports is projected to rise to 25.8 percent under the tariffs and exemptions currently in effect.
• The average effective tariff rate, reflecting behavioral responses such as decreased imports due to higher tariffs, will rise to 11.3 percent, the highest since 1943.
• Tariffs are estimated to cause imports to fall by nearly 800 billion in 2025, a 23 percent decrease.

Revenue from Tariffs

• The April 2 "reciprocal tariffs" are projected to raise 1.0 trillion in revenue over the next decade if the 90-day pause ends as scheduled, excluding Canada and Mexico.
• Previously imposed tariffs will raise 1.1 trillion over the next decade.
• Tariffs on China are expected to generate comparatively little revenue due to the high rates (145 percent on most imports), which will significantly reduce imports from China.

Overall Economic Impact

• Trump’s tariffs are projected to raise 2.1 trillion in revenue over the next decade on a conventional basis (1.5 trillion on a dynamic basis).
• US GDP is estimated to decrease by 0.8 percent before foreign retaliation.
• Including foreign retaliation announced as of April 10, the tariffs are projected to reduce US GDP by 1.0 percent.

Impact on Household Income

• Tariffs will reduce after-tax income by an average of 1.2 percent.
• This equates to an average tax increase of 1,243 per US household in 2025.
• The estimated reductions in after-tax income may understate the harm to consumers due to the loss of choice as tariffs reach prohibitive rates.

Foreign Retaliation

• As of April 4, China, Canada, and the European Union have announced or imposed retaliatory tariffs affecting 330 billion of US exports.
• Imposed and threatened retaliation as of April 10 will reduce US GDP by another 0.2 percent and 10-year revenue by 132 billion on a dynamic basis.

Tariffs as a Tax Hike

• In 2025, Trump’s tariffs will increase federal tax revenues by 166.6 billion, or 0.55 percent of GDP, making them the largest tax hike since 1993.
• The tariffs are larger than the tax increases enacted under Presidents George H.W. Bush and Barack Obama.

Products Affected by Tariffs

• The first Trump administration imposed tariffs on products valued at approximately 380 billion in 2018 and 2019.
• "Reciprocal" tariffs affect approximately 1.3 trillion of imports from China, the EU, and nearly all other trading partners, excluding Canada and Mexico.
• Fentanyl tariffs affect all imports from China and non-USMCA imports from Canada and Mexico.
• Product-specific tariffs affect another 518 billion of steel, aluminum, derivatives, and autos (with some overlap with the fentanyl tariffs).
• In total, more than 2.3 trillion, or 71 percent, of US imports face new tariffs.

Timeline of 2025 Trump Tariffs

• January 20, 2025: President Trump instructed cabinet secretaries to develop reports on trade practices and tariff recommendations due by April 1, 2025.
• Since then, several new tariffs and tariff investigations have been threatened, initiated, and/or imposed.

Country-Specific Tariffs

• IEEPA Border Security and Fentanyl Tariffs:
  • February 1, 2025: Executive orders to impose 25 percent tariffs on Canada and Mexico and 10 percent tariffs on China, effective February 4.
  • China:
    • 10 percent tariffs on all imports from China took effect on February 4, 2025.
    • Tariffs increased by another 10 percent on March 4.
  • Canada:
    • Tariffs received a 30-day suspension and took effect March 4.
    • Auto imports were exempted until April 2.
    • Imports covered by the USMCA trade deal were exempted until April 2; the exemption was later extended indefinitely.
    • The president considered doubling the 25 percent rate on steel and aluminum to 50 percent in response to Canada’s retaliation but later retracted the decision.
  • Mexico:
    • Tariffs received a 30-day suspension and took effect on March 4.
    • Auto imports were exempted until April 2.
    • Imports covered by the USMCA trade deal were exempted until April 2; the exemption was later extended indefinitely.
• "Reciprocal" Tariffs:
  • February 13, 2025: Presidential memorandum to develop a plan for increasing US tariffs in response to other countries’ policies.
  • Recommendations due April 1, 2025, with tariffs taking effect on April 2.
  • Applied to imports from nearly every US trading partner, excluding goods facing product-specific tariffs and certain energy-related and other goods.
  • On April 2, a universal tariff of 10 percent was announced, with higher tariffs (up to 50 percent) depending on the trade balance with the US.
  • On April 7, in response to China’s retaliation, President Trump indicated another 50 percent tariff would apply to China beginning April 9, which was increased on April 9 to a total rate of 125 percent under the reciprocal tariffs.
  • The rate on most imports from China is 145 percent when accounting for the IEEPA border security and fentanyl tariffs.
  • The 10 percent universal tariff took effect April 5.
  • On April 9, President Trump announced a 90-day pause on the reciprocal tariffs for all other countries excluding China.
  • On April 11, the Trump administration announced certain electronics would be exempt from the “reciprocal” tariffs.
• Venezuelan Oil Tariffs:
  • March 24, 2025: Executive order to impose an additional 25 percent tariff on Venezuela and countries purchasing oil and gas from Venezuela, potentially effective April 2.
• European Union:
  • February 26, 2025: Plans announced to impose tariffs of 25 percent on imports from the European Union.
  • On April 2, the "reciprocal" tariff rate on imports from the EU was specified as 20 percent.

Product-Specific Tariffs

• Semiconductors and Pharmaceuticals:
  • January 27, 2025: Announcement of new tariffs on computer chips, semiconductors, and pharmaceuticals.
  • February 18: Rates announced to be “25 percent and higher."
• Steel and Aluminum:
  • February 10, 2025: Expansion of existing Section 232 tariffs, ending exemptions, expanding the list of derivative articles, and raising the tariff rate on aluminum from 10 percent to 25 percent, effective March 12, 2025.
• Autos:
  • February 14, 2025: Plans to impose tariffs on auto imports beginning April 2, 2025.
  • February 18: Rate on autos would be “in the neighborhood of 25 percent."
  • March 26, 2025: Authorization of 25 percent tariffs on autos and certain auto parts under Section 232, effective April 3 for autos and before May 3 for auto parts.
  • US-based content of certain imports from Canada and Mexico will be exempt.
• Agricultural Products:
  • March 3, 2025: Tariffs on “external” agricultural products would begin April 2, 2025.
• Copper:
  • February 25, 2025: Commerce Department directed to begin a Section 232 national security investigation; findings due by November 22, 2025.
• Lumber:
  • March 1, 2025: Commerce Department directed to begin a Section 232 national security investigation into timber, lumber, and derivative imports; findings due by November 26, 2025.

Retaliation

• China
  • IEEPA fentanyl retaliation:
    • 10 percent and 15 percent tariffs on 13.9 billion of US exports (including ag equipment and oil) effective on February 10.
    • 10 percent and 15 percent tariffs on 19.5 billion of US exports (including agricultural products) effective on March 10.
  • IEEPA universal retaliation:
    • 34 percent tariffs on all 144 billion of US exports announced on April 4.
    • On April 9, China increased its retaliation to 84 percent on all US exports.
    • On April 11, China increased its retaliation to 125 percent on all US exports
• Canada
  • IEEPA fentanyl retaliation:
    • 25 percent tariffs on 20.8 billion of US exports effective on March 4.
    • 25 percent tariffs on 86.7 billion of US exports scheduled for March 23.
    • Planned 25 percent tax on electricity exports from Ontario to the US, currently suspended.
  • Section 232 steel and aluminum retaliation: 25 percent tariffs on 20.7 billion of US exports effective March 13
  • Section 232 auto retaliation: 25 percent tariffs on 30.5 billion of US autos
• European Union
  • Section 232 retaliation: Lift suspension of previous tariffs, with rates of up to 50 percent, affecting 8 billion of US exports scheduled for April 1 (including whiskey).
  • Expand tariffs to an additional 20 billion of US exports initially scheduled for April 13, but delayed for 90-days along with the US 90-day delay.

Modeling of Economic Effects

The model incorporates the following policies::
*A 20% tariff on all imports from China plus a 125% tariff on all imports from China excluding those subject to Section 232 tariffs or on the exclusion list (resulting in a 145% tariff on most imports from China). Ending de minimis treatment for all imports from China.
*A 25% tariff on all imports from Mexico in 2025, which we assume is reduced to 12% after 2025 under the April 2 tariffs. USMCA-compliant imports are exempt from the tariffs indefinitely.
*A 10% tariff on energy and potash imports in 2025 plus a 25% tariff on all remaining imports from Canada in 2025. After 2025, we assume the energy and potash tariffs end and the tariffs on all remaining imports from Canada are reduced to 12% under the April 2 tariffs. USMCA-compliant imports are exempt from the tariffs indefinitely. Excluding USMCA trade, tariffs will apply to 256 billion of Canadian imports based on 2024 trade data.
*A 10% baseline tariff on all countries from April through June of 2025, with higher rates on 60 trading partners beginning in the second half of 2025, both excluding goods that face product-specific tariffs and goods on the Annex 2 and electronics exclusion list. Imports from the EU face a 20% tariff and imports from Canada and Mexico excluding USMCA trade will face a 12% tariff. Tariffs on China are modeled separately.
*A 25% tariff on all autos and certain auto parts, excluding US content of imports from Canada and Mexico. We illustrate the effects of this policy with 25% tariffs on all auto and auto parts specified in the Federal Register excluding USMCA trade.
*Expansions to the Section 232 steel and aluminum tariffs, including ending country exemptions, raising the rate on aluminum from 10 percent to 25 percent, and expanding the derivatives list.
*Ending the country exemptions for the existing steel and steel derivatives tariffs, which increases imports subject to the tariffs from 5.5 billion to 34.6 billion (excluding interactions with tariff rate quotas)
*Ending the country exemptions for the existing aluminum and aluminum derivatives tariffs, which increases imports subject to the tariffs from 6.1 billion to 18.5 billion (excluding interactions with tariff rate quotas)
*Increasing the tariff rate on aluminum and aluminum derivatives from 10 percent to 25 percent

Overall Economic Impact of Modeled Policies

• Before accounting for any foreign retaliation, Trump’s tariffs will reduce long-run US GDP by 0.8 percent.
• As of April 10, threatened and imposed retaliatory tariffs affect 330 billion of US exports based on 2024 US import values; if fully imposed, we estimate they would reduce US GDP by 0.2 percent.
• Combined, the US-imposed tariffs and the threatened and imposed retaliatory tariffs reduce US GDP by 1.0 percent.
• If imposed on a permanent basis, the tariffs would increase tax revenue for the federal government.

Revenue Effects and Dynamic vs. Conventional Basis

• On a conventional basis, before incorporating the negative effects of tariffs on the US economy, all the tariffs together would increase US federal tax revenue by 2.1 trillion over the next decade.
• On a dynamic basis, incorporating the negative effects of the US-imposed tariffs on the US economy, all the tariffs together would raise 1.5 trillion over the next decade, about 600 billion less than the conventional estimate.
• Incorporating the negative effects of imposed and threatened retaliatory tariffs as of April 9, 2025, further reduces 10-year revenue by 132 billion.

Impact on Income and Household Finances

• The tariffs as imposed and scheduled to rise later in 2025 will reduce after-tax incomes by 1.2 percent on average, with the top 1 percent of taxpayers seeing a smaller 1.1 percent reduction in after-tax incomes.
• Per US household, the imposed and scheduled tariffs will amount to an average tax increase of about 1,243 in 2025.

Tariff Rates

• The new tariffs will significantly raise the tariff rates the US applies to most imports. According to the World Bank, the weighted average applied tariff was 1.5 percent in 2022.
• Under the tariffs currently imposed, it rises by 24.3 percentage points, reaching 25.8 percent.
• After incorporating behavioral responses, including our estimated drop in imports of nearly of $800 billion (23 percent), we estimate the average effective tariff rate will rise to 11.3 percent—the highest rate since 1943.
• We estimate the average effective tariff rate will rise to 11.3 percent—the highest rate since 1943
• In 2025, Trump’s tariffs will increase federal tax revenues by 166.6 billion, or 0.55 percent of GDP, making the tariffs the largest tax hike since 1993.
• The tariffs are larger than the tax increases enacted under Presidents George H.W. Bush and Barack Obama.

Tariffs in 2024 Campaign Proposals

• A 20 percent universal tariff and an additional 50 percent tariff on China to reach 60 percent would reduce long-run economic output by 1.3 percent before any foreign retaliation.
• They would increase federal tax revenues by 3.8 trillion (3.1 trillion on a dynamic basis before retaliation) from 2025 through 2034

2018-2019 Trade War

• Using the Tax Foundation’s General Equilibrium Model, we estimate the Trump-Biden Section 301 and Section 232 tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by 142,000 full-time equivalent jobs.
• As of the end of 2024, the trade war tariffs have generated more than 264 billion of higher customs duties collected for the US government from US importers. Of that total, 89 billion, or about 34 percent, was collected during the Trump administration, while the remaining 175 billion, or about 64 percent, was collected during the Biden administration.
• Trade war tariffs have directly increased tax collections by 200 to 300 annually per US household, on average.
• We estimate the retaliatory tariffs will reduce US GDP and the capital stock by less than 0.05 percent and reduce full-time employment by 27,000 full-time equivalent jobs.

Historical Evidence

• Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income.
• Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for US businesses and consumers, resulting in lower income, reduced employment, and lower economic output.
• A February 2018 analysis by economists Kadee Russ and Lydia Cox found that steel‐consuming jobs outnumber steel‐producing jobs 80 to 1, indicating greater job losses from steel tariffs than job gains.
• A March 2018 Chicago Booth survey of 43 economic experts revealed that 0 percent thought a US tariff on steel and aluminum would improve Americans’ welfare.
• An August 2018 analysis from economists at the Federal Reserve Bank of New York warned the Trump administration’s intent to use tariffs to narrow the trade deficit would reduce imports and US exports, resulting in little to no change in the trade deficit.
• An April 2019 University of Chicago study conducted by Aaron Flaaen, Ali Hortacsu, and Felix Tintelnot found that after the Trump administration imposed tariffs on washing machines, washer prices increased by 86 per unit and dryer prices increased by 92 per unit ultimately resulting in an aggregate increase in consumer costs of over 1.5 billion
• An October 2019 study by Alberto Cavallo and coauthors found tariffs on imports from China were almost fully passed through to US import prices but only partially to retail consumers, implying some businesses absorbed the higher tariffs, reducing retail margins, instead of passing them on to retail consumers.
• A December 2019, Federal Reserve economists Aaron Flaaen and Justin Pierce found a net decrease in manufacturing employment due to the tariffs, suggesting that the benefit of increased production in protected industries was outweighed by the consequences of rising input costs and retaliatory tariffs.
• A may 2023 United States International Trade Commission report from Peter Herman and others found evidence for near complete pass-through of the steel, aluminum, and Chinese tariffs to US prices.
  A January 2024 International Monetary Fund paper found that unexpected tariff shocks tend to reduce imports more than exports, leading to slight decreases in the trade deficit at the expense of persistent gross domestic product losses—for example, the study estimates reversing the 2018–2019 tariffs would increase US output by 4 percent over three years.
• A January 2024 study By David Author and others concluded that the 2018-2019 tariffs failed to provide economic help to the heartland: import tariffs had “neither a sizable nor significant effect on US employment in regions with newly‐protected sectors” and foreign retaliation “by contrast had clear negative employment impacts, particularly in agriculture.”

Section 232, Steel and Aluminum

• Value of imported steel totaled 29.4 billion, the value of imported aluminum totaled 17.6 billion in 2018.
• Based on 2018 levels, the steel tariffs would have amounted to 9 billion and the aluminum tariffs to 1.8 billion.
• President Trump announced that the US was lifting tariffs on steel and aluminum from Canada and Mexico.
• Tariffs on steel, aluminum, and derivative goods currently account for 2.7 billion of the 79 billion in tariffs, based on initial import values.
• Current retaliation against Section 232 steel and aluminum tariffs targets more than 6 billion worth of American products for an estimated total tax of approximately 1.6 billion

Section 301, Chinese Products

• The new tariff rates range from 25 to 100 percent on semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural graphite and other critical materials, medical goods, magnets, cranes, and solar cells
• Section 301 tariffs on China currently account for 77 billion of the 79 billion in tariffs, based on initial import values.
• China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than 106 billion worth of US goods, for an estimated tax of nearly 11.6 billion

Trade Volumes Since Tariffs Were Imposed

• Since the tariffs were imposed, imports of affected goods have fallen.
• Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries.