Would Donald Trump’s taxes on trade hurt US consumers?

Donald Trump has consistently advocated for increasing tariffs on imports to the U.S., seeing them as a strategy to boost the U.S. economy, protect American jobs, and raise government revenue. He has proposed tariffs as high as 20% on foreign goods and even 60% on imports from China, with the possibility of a 200% tariff on some foreign-made cars. While Trump’s tariffs are a cornerstone of his economic vision, economists argue that they could ultimately hurt U.S. consumers, contrary to his claim that these taxes would not affect them.

How Do Tariffs Work?

Tariffs are taxes imposed on goods as they enter a country, usually based on the value of the goods. For example, a $50,000 car imported into the U.S. would incur a $5,000 tariff if the rate is 10%. Although the tariff is officially paid by the U.S. company importing the product, the cost could be passed on to American consumers in the form of higher prices. If the importing company absorbs the cost, it would experience lower profits. Alternatively, foreign exporters may reduce their prices to keep U.S. customers, absorbing the cost themselves. However, studies suggest that the economic burden of tariffs often falls on U.S. consumers, who face higher prices.

The Economic Impact on Consumers

In 2023, the U.S. imported around $3.1 trillion worth of goods, which accounted for approximately 11% of GDP. These imports included items like crude oil, cars, electronics, and pharmaceuticals, generating $80 billion in tariff revenue for the U.S. government, or about 2% of total tax revenue. However, economic research indicates that most of the cost of tariffs is ultimately passed on to U.S. consumers through higher prices.

A study by the University of Chicago in 2024 found that 98% of economists agree that tariffs result in higher consumer prices. For instance, in 2018, Trump imposed a 50% tariff on imported washing machines. As a result, the price of washing machines increased by about 12%, costing U.S. consumers an additional $1.5 billion annually. The impact of future tariffs is expected to be similar, with a typical middle-income U.S. household potentially losing between $1,700 and $3,900 a year, depending on the research source.

Effect on Jobs

One of Trump’s key justifications for tariffs is that they will protect and create U.S. jobs, particularly in manufacturing. The loss of U.S. manufacturing jobs to countries with lower labor costs, especially after trade deals like NAFTA and China’s entry into the World Trade Organization, has been a long-standing concern. For example, U.S. manufacturing jobs dropped from nearly 17 million in 1994 to about 12 million in 2016.

However, economists argue that automation, rather than trade, is a significant factor in job losses. Research on Trump’s tariffs during his first term showed no substantial positive effects on employment in protected industries. For example, despite a 25% tariff on imported steel in 2018, the U.S. steel industry still lost jobs, with the workforce shrinking from 84,000 in 2018 to 80,000 in 2020. Tariffs on steel also raised domestic steel prices, hurting industries that depend on steel, like agricultural machinery manufacturing.

Impact on the Trade Deficit

Trump’s tariffs were also intended to reduce the U.S. trade deficit—the gap between the value of imports and exports. However, his tariffs did little to close the deficit. In 2016, the deficit was $480 billion, and by 2020, it had increased to $653 billion, despite the tariffs. One reason for this is that tariffs increased the value of the U.S. dollar, making American exports more expensive and less competitive abroad.

Moreover, multinational companies often find ways to circumvent tariffs. For example, Chinese solar panel manufacturers shifted their assembly operations to countries like Malaysia and Thailand to avoid U.S. tariffs, continuing to export their products to the U.S. without the added costs.

Alternative Views

Some economists, like Jeff Ferry from the Coalition for a Prosperous America, support tariffs as a way to boost domestic industry. They argue that tariffs incentivize companies to keep manufacturing in the U.S., which could have national security and supply chain benefits. Similarly, Oren Cass from the think tank American Compass believes that tariffs can support U.S. manufacturing and reduce dependence on foreign production.

While the Biden administration has criticized Trump’s tariff proposals, it has maintained many of the tariffs Trump implemented, including new ones on Chinese electric vehicles. The Biden administration justifies these tariffs on grounds of national security and unfair trade practices, particularly with regard to China.

Conclusion

While Donald Trump’s tariffs may seem like a way to protect U.S. industries and jobs, the reality is more complex. Economic studies suggest that the primary burden of tariffs falls on U.S. consumers, who face higher prices for imported goods. The broader economic impact on jobs and the trade deficit has been mixed, with little evidence that tariffs have led to significant job creation or a reduction in the trade deficit. Ultimately, tariffs may be an inefficient tool for achieving economic goals, with significant costs to American households.