Trump's tariffs on Canada, Mexico, and China would cost the typical US household over $1,200 a year

This past weekend, President Donald Trump announced the largest tax increase in at least a generation (since 1993 or before), with the imposition of 25 percent tariffs on most goods from Canada and Mexico (aside from Canadian energy, which faces a 10 percent tariff), alongside a 10 percent increase in tariffs on goods from China. The direct cost of these actions to the typical, or median, US household would be a tax increase of more than $1,200 a year.

These announcements mark the first wave of tariffs expected to come from the new Trump administration. Trump has threatened the entire world with tariffs. Further, governments abroad will retaliate; both Canada and Mexico have already announced retaliatory measures. Future waves of US tariffs and retaliation will increase these substantial consumer costs alongside the other economic harms of tariffs: reduced economic growth, a shrinking export sector, and supply chain disruption. These negative consequences are discussed in detail in Clausing and Lovely (2024) and Clausing and Obstfeld (2024).

While exchange rate movements or declines in exporter prices could reduce consumer harm, prior evidence is clear that exchange rate effects have only a partial dampening effect (with any alleviation coming at the expense of the export sector). Careful analysis of the 2018–19 trade war with China consistently found that foreign exporters to the United States did not lower prices when hit with US tariffs; US buyers of imports bore the tax burden.

Importantly, several factors could increase costs above those illustrated here. Foremost, domestic producers that compete with the newly tariffed imports will increase their prices in line with import price increases. This will add insult to injury for US consumers, raising their costs above those shown in this figure. In general, higher prices alongside recessionary impacts from retaliation and supply chain disruption will negatively impact most US households.

While Trump ran for president on a platform of lowering taxes, most Americans would see a net tax increase from his agenda so far. Both Trump and congressional Republicans have prioritized extending the tax cuts enacted in the 2017 Tax Cuts and Jobs Act—tax cuts that would otherwise expire at the end of 2025—but that is not enough to cushion most households from negative tariff effects. Only households in the top fifth of the income distribution would enjoy a net gain from the combined effects of the two tax changes; those in the bottom 60 percent of the income distribution would end up significantly worse off.

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