How Tariffs Could Cost You More Than Tax Cuts Ever Saved

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Listener Susan Maxwell from Ypsilanti, Michigan, has a burning question:

Where does tax revenue from tariffs go? Is it just thrown into a general fund? How can I find out if a product I’m buying has a tariff attached? And can tariff tax money fill the gap from tax cuts? Tariffs are so confusing!!!

Let’s break it down: tariffs are essentially a tax you, the consumer, are paying. Sounds tedious, right?

Former President Donald Trump claimed that tariffs punish other countries, but the truth is that they’re an import tax that American companies have to pay to the U.S. government. Those companies can either absorb the costs or pass them on to you, resulting in higher prices at the checkout.

“The most beautiful word in the dictionary is ‘tariff,’ and it’s my favorite word,” Trump once declared. But if he follows through with his plans for hefty tariffs on imports, you may not be so enamored with the word. Not only could prices skyrocket, but the revenue generated from these tariffs won’t nearly balance out his proposed tax cuts.

The U.S. Customs and Border Protection collects tariff revenues and deposits them into the U.S. Treasury’s general fund. Think of this general fund as “America’s checkbook,” funding essential programs like Medicare.

In 2023 alone, tariffs contributed $80 billion, which is a mere 2% of America’s $4.4 trillion tax revenue.

“Eighty billion dollars sounds impressive, but when you’re talking about a total tax revenue of $4.5 trillion, it’s really just a drop in the bucket,” noted Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.

Now, if Trump were to implement sweeping tariffs — say a 60% levy on all Chinese imports along with a 10% tariff on everything else — estimates suggest that this could generate around $2.7 trillion from 2026 to 2035. However, these funds won’t cover the expansive tax cuts and spending proposed by his administration.

“We simply don’t import enough goods. It’s just not feasible,” Gleckman pointed out.

Trump’s financial strategies could hike the national debt by an astounding $7.75 trillion, building upon the current over $35 trillion national debt, according to the Committee for a Responsible Federal Budget (CRFB). These estimates take into account Trump’s intention to eliminate taxes on Social Security benefits and tips, alongside the extension of his 2017 tax cuts.

Tariffs send shockwaves through the economy. If prices increase, the Federal Reserve might feel compelled to raise interest rates again, potentially stalling business investments and cutting down profits, which ultimately affects wages.

In retaliation, other countries could impose tariffs on American goods, which would hurt U.S. businesses and restrain wage growth. “Foreign buyers might just buy less from us if their own countries retaliate with tariffs on our exports,” Gleckman explained.

For example, if Canada decides to slap a tariff on American televisions, that means fewer sales for American manufacturers, leading to diminished profits.

Retailers expected the U.S.-China trade war tariffs to be a transient issue, but as both Trump and President Biden have maintained these tariffs, the situation remains precarious. Some retailers who initially absorbed the costs may not be so generous this time around. The CEO of Autozone mentioned, if tariffs happen, the company “will pass those tariff costs back to the consumer.”

How can you tell if your purchases have a tariff attached?

It’s a tricky business trying to decipher if the products you’re buying are imported, let alone if they come with a tariff, says Alan Deardorff, a professor emeritus of international economics at the University of Michigan. Many American-made items are partly made up of imported components, like automobiles.

However, you can check tariff rates for various products — from food to textiles to electronics — through the United States International Trade Commission’s website. Use the search function to find the tariff rate for specific items!

Once you locate the item, look for two columns. The first column shows applicable duties for imported products. The second column lists tariffs on countries that don’t have normal trade relations with the U.S., including Cuba, North Korea, Russia, and Belarus.

Not only do tariffs have the potential to increase prices, but navigating them can also be a headache. “Most economists see tariffs as an ineffective tool, but they’ve been used for as long as governments have existed because they’re such an easy source of revenue,” Deardorff commented.

But let’s face it: they’re not exactly straightforward!