A worldwide 10 percent tariff and a 60 percent tariff on Chinese goods proposed by Republican presidential candidate Donald Trump would lower average after-tax incomes of US households in 2025 by about $1,800, or 1.8 percent, according to a new analysis by the Tax Policy Center. They’d reduce imports into the US by about $5.5 trillion, or 15 percent, from 2025–2034.
TPC also analyzed the much more modest tariffs President Biden enacted starting last May. They have a very small impact on federal revenue or household incomes.
Trump’s Plan: Higher Revenues And Prices
Former President Trump has proposed many different tariff ideas over the course of the 2024 campaign, but TPC chose to analyze the one he promotes most often, a 10 percent worldwide tariff and a 60 percent tax on imported Chinese goods.
TPC estimated Trump’s tariffs would generate about $3.7 trillion in gross tariff revenues. But they’d increase net federal revenues by much less—about $2.8 trillion over the next decade—because those tariffs would reduce other tax receipts.
Trump’s tariffs would significantly raise prices of imported goods since they’d mostly be passed on to consumers. That would shrink both inflation-adjusted domestic incomes and income tax revenues.
The Federal Reserve could raise interest rates to offset those price increases. But that likely would reduce profits of US corporations and incomes of US workers, lower projected corporate and individual tax revenues, and offset nearly $1 trillion of increased tariff revenue.
All Income Groups Would Pay Higher Taxes
All income groups would see similar percentage declines in after-tax income as a result of Trump’s tariffs, ranging from 1.7 percent to 1.9 percent, TPC estimated. The biggest exception: Those with the highest incomes, whose after-tax incomes would fall by about 1.4 percent.
In dollar terms, the lowest-income households would pay about $320 more in tax, middle-income households would pay $1,350 more, and the top 0.1 percent would pay about $133,000 more.
Trump sometimes claims his tariffs would replace income taxes as a source of federal revenue. But they’d replace only about 8 percent of the $34 trillion in federal income tax revenue the Congressional Budget Office expects the Treasury to collect over the next decade.
Biden Plan: Modest Tariffs, Modest Impact
Biden’s new tariffs are much more modest. His efforts to target Chinese-made electric vehicles, metals, computer chips, and other products will lower imports by about one tenth of one percent, or about $50 billion, through 2033 and generate about $11 billion in net new tax revenue over the decade, TPC estimated.
His import taxes will produce only about $210 million in new revenue this year and have no measurable impact on average after-tax incomes.
Biden is subjecting only about $15 billion out of the $420 billion in Chinese exports to new or higher tariffs. And those goods represent a very small share of total US imports. For example, only about 1 percent of imported steel and a bit more than 5 percent of imported aluminum comes from China.
Similarly, while US automakers fear future competition from low-cost Chinese-made EVs, almost none are currently sold in the US. Thus, the US Treasury would receive little or no new revenue from tariffs on those cars.
How TPC Modeled Tariffs
This is the first time TPC has modeled tariffs. Here are a few important notes on how it did the analysis.
Trump’s proposals were measured against the 2023 tariff law. TPC did not assume Biden’s tariffs have been enacted.
TPC projected the effects of Biden’s import taxes, which already are being phased-in, over the decade 2024-2033. TPC assumed Trump’s plan would take effect in 2025 and estimated the impact of his tariffs through 2034.
TPC modeled the distribution of tariffs in the same way it models excise levies such as gasoline taxes.
It assumed that tariffs on imported consumer goods are passed directly to US customers, consistent with substantial evidence from prior import taxes (here and here). Tariffs on intermediate goods, such as the steel used in autos, also would be paid by purchasers at final sale, including households and government. TPC based its analysis on data from sources such as the US International Trade Commission and the Bureau of Economic Analysis.
Slowing Imports And Project Tariff Revenues
TPC also projected that imports would grow more slowly over time as a result of the Trump tariffs. Thus, in 2025, imports would be about 93 percent of what they’d be without the new import tax. But by 2034, they’d fall to about 79 percent.
At the same time, the amount of net new tax revenue generated by the tariffs would stagnate over time. For example, Trump’s tariffs would generate about $290 billion in new revenue in 2026 but only $275 billion in 2034.
TPC did not analyze any potential benefits to US industries that are protected by tariffs from foreign competition. Nor did it attempt to calculate the impact of retaliatory tariffs that US trading partners would likely impose on US exports to their countries. Such a response would slow US growth and, with it, corporate and individual tax revenues.
Tariffs, especially those aimed at China, enjoy broad bipartisan support. But US consumers, manufacturers, and workers will pay the price, depending on the size on scope of the levy.
