One of the few economic policies that former President Donald Trump’s campaign has offered for a potential second term is a 10 percent across-the-board tariff on all imports. Trump himself announced the policy in August 2023, stating: “When companies come in and they dump their products in the United States, they should pay automatically, let’s say a 10% tax … I do like the 10% for everybody.” It’s a policy that Trump and his campaign have mentioned repeatedly. In fact, his campaign is serious enough about the tariff that it referred The New York Times to former U.S. trade representative Robert Lightizer to describe the plan, which Lightizer noted would be a 10 percent tariff on top of existing tariffs.
A new Center for American Progress Action Fund analysis finds that the proposed across-the-board tariff would amount to a roughly $1,500 annual tax increase for the typical household, including a $90 tax increase on food, a $90 tax increase on prescription drugs, and a $120 tax increase on oil and petroleum products. This tax increase would drive up the price of goods while failing to significantly boost U.S. manufacturing and jobs.
[Trump’s proposed tariff] would drive up the price of goods while failing to significantly boost U.S. manufacturing and jobs.
To be sure, specific tariffs aimed at addressing a specific problem, such as forced labor or dumping of subsidized products, can play an important role in U.S. trade policy. But Trump’s idea to slap a tariff on all imports—60 percent of which come from Canada, Mexico, the European Union, the United Kingdom, Japan, and South Korea—is reckless. This is especially true when compared with the focused and more effective approach taken by the Biden administration. Biden’s cohesive manufacturing strategy of both targeted trade enforcement and real investments in rebuilding the United States’ industrial base has already generated $650 billion of new private sector investment in U.S. manufacturing. This stands in sharp contrast to the real decline of investment in new U.S. manufacturing facilities that occurred during Trump’s presidency.
Americans would bear the burden of the tariff, not other countries
Trump has framed his proposal as one that will tax China and foreign companies. But that shows a complete misunderstanding of how tariffs actually work. Tariffs are a tax levied on U.S. importers when their purchased product crosses into the U.S. market. These importers are usually domestic companies that import products for distribution to U.S. consumers, and no Chinese company falls within the top 10 importers.
Theoretically, foreign exporters could still bear the economic burden of the tariff in the form of lower prices, but economists’ research on Trump’s previous tariffs shows this hasn’t been the case: One study concluded, as did others, “The price incidence of U.S. import tariffs falls largely on the United States.” Some Trump allies have even admitted that his 10 percent tariff would raise consumer costs and directly feed into inflation. Casey Mulligan, who served as chief economist of Trump’s Council of Economic Advisers and is currently an adviser to the America First Policy Institute, has estimated that the new tariff would raise inflation by 1 percentage point.
Trump’s tariff is a roughly $1,500 tax increase for the typical U.S. household
The sweeping, across-the-board 10 percent tariff proposed by the Trump campaign would dramatically increase the cost of goods for families across the country. To illustrate, this analysis estimates that in 2025, Americans will import $3.2 trillion in goods. A 10 percent tariff on goods would effectively raise taxes on goods by about $300 billion, or an average of $1,700 per household in the tariff’s first year. Middle-income U.S. households—those in the 40th to 60th percentile of the income distribution—consume about 85 percent as much as the average household according to the Consumer Expenditure Surveys, which suggests a roughly $1,500 tax increase for the typical household. (see Figure 1). Moreover, these households would continue to pay the tax every year the tariff remained in place.
Looking at the items consumers buy shows how the import tax proposed by Trump would directly affect the cost of living for the typical U.S. household:
- The tax on food would be $90.
- The tax on pharmaceutical drugs would be $90.
- The tax on cars, auto parts, and other vehicles—including the inputs used to make them—would be $220.
- The tax on clothing would be $70, and the tax on electronics would be $80.
- The tax on imported oil and petroleum products would be $120.
How Trump’s tariff would affect food costs
The Trump tariff’s $90 tax on food would hit items commonly found on Americans’ grocery lists. Some of the categories of food that would bear the largest tax burden include:
The tariff would also raise food costs in the longer term, as U.S. farmers would face greater costs to obtain supplies from abroad: Last year, the United States imported $18 billion in farm equipment and $16 billion in fertilizer, and the country relies on imports for 50 percent of its nitrogen fertilizer supplies and 85 percent of its potash fertilizer supplies.
In addition, the tariff would hit other industrial supplies and capital goods that American companies use to produce goods and services for American consumers or for export to other countries, resulting in a tax increase of $610 for the typical U.S. household. This tax would be experienced via higher prices for services such as health care and dining out, as well as higher costs for new housing due to the tax increases on imported lumber, metal, and other home-building materials.
Moreover, the tariff would make U.S. exporters less competitive with foreign competitors since they often rely on imports as inputs into their U.S.-based production. Their prices would rise as they paid the tariff or moved to more expensive domestic suppliers. For reference, one study found that the 2018–2019 Trump tariffs’ increase in U.S. exporters’ costs was the equivalent of an almost 2 percent tariff on U.S. goods abroad. And these costs are on top of the inevitable costs exporters would face from the retaliatory tariffs other countries would impose on U.S. goods.
Trump’s approach to reinvigorating manufacturing failed, while Biden’s is working
Trump has argued in favor of his approach, saying: “This system [will] end our gaping trade deficits—and they are massive right now—and bring back millions of American jobs … this plan will be the linchpin of a new Strategic National Manufacturing Initiative.” He has also framed the tariff as part of a larger plan to “tax China to build up America.” But this is dangerously mistaken.
Trump’s blanket tariff would be unsuccessful as a strategy to counter China: About 60 percent of U.S. goods imports come from six friendly trading partners: Canada, Mexico, the European Union, the United Kingdom, Japan, and South Korea. Trump has also proposed a separate tariff of more than 60 percent on Chinese imports. That proposal has its own issues—especially as Chinese goods would come through other Asian countries to avoid the 60 percent tariff—but it underlines that the 10 percent tariff proposal does not specifically target China.
Furthermore, Trump’s record shows just how ineffective his tariff-only approach was at keeping jobs from going overseas. Data from the U.S. Department of Labor demonstrate that when Trump was president, outsourcing continued at pace. Indeed, a recent analysis found that Trump’s “import tariffs on Chinese and other foreign goods had neither a sizable nor significant effect on US employment in regions with newly-protected sectors.” The foreign retaliatory tariffs they caused, on the other hand, “had clear negative employment impacts particularly in agriculture, and these harms were only partly mitigated by compensatory subsidies.”
The best way to entice global manufacturers to move to the United States is to invest in the U.S. manufacturing sector.
The Biden administration’s approach is different, and there’s evidence that it is working. The best way to entice global manufacturers to move to the United States is to invest in the U.S. manufacturing sector. That is what President Biden and congressional Democrats have done through the Inflation Reduction Act, the CHIPS and Science Act, and other once-in-a-generation investments in the American economy.
At last check, those laws have helped spur $650 billion of new private sector investment in U.S.-based manufacturing and a 120 percent increase in inflation-adjusted manufacturing construction spending since Biden took office. Manufacturing construction spending under Trump, on the other hand, fell 9 percent. (see Figure 2) Even when focusing on just Trump’s first three years, to exclude the pandemic, manufacturing construction spending only grew 0.1 percent. Moreover, the U.S. trade deficit with China reached a three-year low last year under Biden, with Mexico became our largest trading partner.
Conclusion
Unlike the Trump campaign’s approach, the Biden administration’s approach has not relied on raising prices for consumers; it has reduced them. The successes the Biden administration is already seeing show that making America a 21st-century manufacturing powerhouse requires strategic and forward-looking investments, not haphazard and poorly targeted across-the-board tariffs.
The authors would like to thank Marc Jarsulic and Emily Gee for their helpful suggestions and Jessica Vela for her research assistance.
See also
Methodology
This analysis uses 2023 data from the U.S. Census Bureau table “Exhibit 8. U.S. Imports of Goods by End-Use Category and Commodity.”
For the purpose of simplification, the authors separated import categories into the following groups:
- Apparel, footwear, and jewelry: “Cotton apparel and household goods,” “other textile apparel and household goods,” “footwear,” “nontextile apparel and household goods,” “wool apparel and household goods,” and “jewelry”
- Electronics: “Cell phones and other household goods,” “televisions and other video equipment,” “stereo equipment, etc.,” and “photo equipment”
- Pharmaceutical drugs: “Pharmaceutical preparations”
- Furniture, kitchen appliances, and other household items: “Furniture, household goods, etc.,” “household appliances,” “cookware, cutlery, tools,” “glassware, chinaware,” “nursery stock,” and “rugs”
- Toys, sporting goods, books, collectibles, and other recreational items: “Toys, games, and sporting goods,” “camping apparel and gear,” “books, printed matter,” “artwork and other collectibles,” “musical instruments,” “recorded media,” and “numismatic coins”
- Oil and petroleum products: “Crude oil,” “fuel oil,” “other petroleum products,” and “liquefied petroleum gas”
- Materials and equipment for U.S. businesses: “Capital goods, except automotive” and “industrial supplies and materials” other than those included in “oil and petroleum products”
- Food: “Foods, feeds, and beverages”
- Autos, motorcycles, and pleasure boats: “Automotive vehicles, parts, and engines,” “motorcycles and parts,” and “pleasure boats and motors”
- Other: “Gem diamonds,” “gem stones, other,” “other consumer nondurables,” “toiletries and cosmetics,” and “other goods”
The authors then increased the 2023 values to estimated 2025 values based on the projected percentage increase in total imports in the Congressional Budget Office’s (CBO) February 2024 Economic Outlook. They multiplied the value of each import category by 10 percent to calculate a total tax increase. That aggregate tax increase was then divided by the U.S. Treasury Office of Tax Analysis’ estimate of the number of tax units in 2024, scaled up to a 2025 value using the CBO’s projected increase in the number of households from 2024 to 2025.
The authors then scaled down the amount of tax increase by 15 percent so they represent a middle-income household instead of the average U.S. household. The U.S. Bureau of Labor Statistics Consumer Expenditure Surveys found that households in the middle quintile consumed 15 percent less than the average household in 2022.
This analysis follows the convention tax modelers at the Treasury Department and the Tax Policy Center use to estimate the distributional burden of taxes and assumes no behavioral response—as opposed to a revenue estimate that would incorporate those responses. Consumers would likely buy fewer imported goods to avoid the tax, but that itself is a form of paying the tax; for example, a family that switches from imported fresh berries to frozen domestic berries in the winter may purchase an untaxed item, but they are not purchasing their preferred form of berry and would experience a decline in living standard.