Could Donald Trump's Proposed Tariffs Hurt US Consumers?
If Donald Trump wins the presidency again, he has vowed to implement sweeping tariffs on imported goods entering the United States. His plan includes imposing tariffs of up to 20% on goods from various countries and up to 60% on all imports from China. He’s even floated the idea of a 200% tariff on certain cars.
Tariffs are at the heart of Trump’s economic agenda. He argues they will boost the US economy, safeguard jobs, and generate tax revenue. On the campaign trail, Trump has assured Americans that these taxes will cost other countries, not US citizens. However, this claim is widely regarded by economists as misleading.
How Do Tariffs Work?
In practice, a tariff is a tax that is applied to goods entering the country, calculated based on the value of the import. For example, if a car valued at $50,000 is imported to the US with a 10% tariff, it would incur a $5,000 charge. The charge is paid by the US-based company importing the car, not the foreign exporter. So, it becomes a direct tax that the US firm pays to the government.
In 2023, the US imported goods worth around $3.1 trillion, about 11% of the nation’s GDP.
Top US imports by value in 2022 included:
- Crude petroleum: $199 billion
- Cars: $159 billion
- Broadcasting equipment: $116 billion
- Computers: $108 billion
Tariffs on these goods brought in about $80 billion in 2023, or 2% of total US tax revenue.
The more complex question is: who actually shoulders the “economic” burden of tariffs? If US companies pass the cost to consumers by raising prices, American shoppers end up paying more. Alternatively, if firms absorb the cost themselves, they suffer reduced profits. In some cases, foreign companies may cut their prices to retain US business, meaning they bear the burden. All three scenarios are possible, but evidence from Trump’s first term suggests that most of the costs were passed on to American consumers.
Impact on Consumer Prices
Take the example of washing machines. In 2018, Trump imposed a 50% tariff on imported washing machines. Prices jumped by about 12%, or $86 per unit. US consumers ended up paying around $1.5 billion more per year as a result. Economists believe that higher tariffs proposed by Trump would likely have similar effects.
A 2024 survey conducted by the University of Chicago asked economists if they agreed that tariffs increase prices for consumers in the enacting country. Only 2% disagreed.
In fact, a think tank, the Peterson Institute for International Economics, estimates that Trump’s new tariff proposals could lower Americans’ incomes, with the poorest fifth of households losing around 4%, and the wealthiest fifth losing 2%. A middle-income household could see an annual loss of about $1,700, while another group estimated that this loss could be between $2,500 and $3,900 per family. Tariffs could also push inflation higher, making everyday goods more expensive.
Impact on Jobs
One of Trump’s key arguments for tariffs is that they protect and create American jobs. On the campaign trail, he has claimed that his tariffs will make foreign nations worry about losing jobs to the US rather than the other way around.
Trump’s stance comes from concerns about US manufacturing jobs moving overseas, particularly after trade agreements like NAFTA (North American Free Trade Agreement) and China’s entry into the World Trade Organization. For example, the US had nearly 17 million manufacturing jobs in 1994, but by 2016, that number had dropped to 12 million.
However, economists point out that job losses in manufacturing are also due to automation, not just trade. Studies of Trump’s first-term tariffs found no significant gains in employment in the industries protected by tariffs. For instance, Trump imposed a 25% tariff on steel imports in 2018, but by 2020, steel sector employment had fallen from 84,000 to 80,000. The tariff likely prevented further job losses, but the overall impact on employment was limited.
Worse, higher steel prices resulting from the tariffs hurt industries that rely on steel, like agricultural equipment manufacturers, causing job losses in those sectors.
Impact on the Trade Deficit
Trump has also argued that trade deficits are harmful to the economy. In 2016, before Trump took office, the US had a trade deficit of $480 billion, or 2.5% of GDP. By 2020, the deficit had grown to $653 billion, or 3% of GDP, despite his tariffs.
Economists suggest that Trump’s tariffs may have actually worsened the trade deficit by increasing the value of the US dollar relative to other currencies, making US exports less competitive abroad. Moreover, globalized trade networks allowed companies to find ways around tariffs. For example, Chinese solar panel manufacturers shifted assembly to other countries like Malaysia and Thailand to avoid US tariffs, then shipped the products to the US from those locations.
Conclusion
While a few economists support Trump’s tariff approach, arguing that it could strengthen US industry and protect national security, they remain in the minority. In contrast, many economists warn that tariffs could ultimately harm American consumers and jobs, increase inflation, and fail to address the trade deficit.
