Trump's bigger tariff proposals would cost the typical American household over $2,600 a year

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In recent campaign events, former president Donald Trump mused that he might impose even higher tariffs than those he proposed earlier this campaign season. In our recent Policy Brief, Clausing and Lovely (2024), we examined the many downsides of Trump’s tariff proposals, including a 60 percent tariff on all imports from China and a 10 percent across-the-board tariff on imports from everywhere else. Trump’s latest statements show he’s now considering tariffs of up to 20 percent on most imports.

We find that imposing a 20 percent across-the-board tariff combined with a 60 percent tariff on China would cost a typical US household in the middle of the income distribution more than $2,600 a year. That’s up from the $1,700 loss in after-tax income that would result from his earlier plan.

A recent blog post, Clausing and Obstfeld (2024), analyzed the harm that would come from Trump’s earlier tariff suggestions, including his idea of replacing the federal income tax with revenue from tariffs (which is, simply put, impossible), and discussed why even higher tariff rates would pose even larger risks to economic growth and world financial stability.

High tariffs also imply a massive shifting of the tax burden from richer taxpayers toward lower-income Americans. Following the method of Clausing and Lovely (2024), this PIIE Chart shows the net effects on Americans, grouped by income level, of Trump’s proposed tax cuts and tariff increases. Here we examine an across-the-board tariff of 20 percent, leaving the China tariff proposal unchanged. Households in all quintiles lose net income from such high tariffs, but the losses are greatest for those at the bottom of the income distribution. The median household would expect to see its after-tax income fall by about 4.1 percent, more than $2,600, because of tariffs. Still, the top 1 percent would experience net gains in income because their losses from tariffs are more than offset by Trump’s proposed tax cuts.

This PIIE Chart is adapted from Kimberly A. Clausing and Mary E. Lovely's Policy Brief, Why Trump's tariff proposals would harm working Americans.

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