President-elect Donald Trump speaks during a news conference January 7, 2025 in Palm Beach, Florida.
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Donald Trump made a big new promise last week regarding tariffs – the latest in a series of outsized pledges aimed at using tariffs to benefit the United States.
On his social media platform, he has said he wants to create what he calls the “Foreign Revenue Service” to collect tariffs and other revenue from foreign sources.
Let’s be clear, this name itself is misleading: the vast majority of customs duties are paid by American companies importing goods, not from external foreign sources.
The message is the latest in a long line of promises Trump has made regarding tariffs, which are at the center of his economic strategy. These tariff promises will be difficult to keep, economists say – and some even work against each other.
The objectives of tariffs: income, jobs and the war on drugs
One of Trump’s big tariff promises is about raising revenues. During the electoral campaign, he told a Georgian crowd that “we are going to inject hundreds of billions of dollars into our treasury and use that money to benefit American citizens.”
President-elect Donald Trump shakes hands during a rally September 24, 2024 in Savannah, Georgia.
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Brandon Bell/Getty Images
He has also repeatedly said the tariffs would boost U.S. manufacturing. In that same speech in Georgia, Trump said he would impose tariffs on cars made in Mexico. “We will put a 100% tariff on every car crossing the Mexican border and tell them the only way they can get rid of this tariff is to build a factory right here in the United States, with you operating these customs duties.
To a recent press conferencehe also said tariffs could stem illegal immigration and drugs.
“Mexico must stop allowing millions of people to flood into our country,” he said. “We’re going to impose very high tariffs on Mexico and Canada, because Canada, they’re also going through Canada, and the drugs going through there are in record numbers.”
These pricing objectives are contradictory
This sounds great: a simple tip to fight drugs, debt and jobs. But it’s hard to see how all of this could happen at once.
“You can have a tariff to raise revenue or a tariff to restrict, but you can’t have both,” says Erica York, vice president for federal tax policy at the Tax Foundation, a right-wing economic think tank .
Since a tariff is a tax that U.S. importers pay for goods from other countries, tariffs generate revenue.
But Trump also wants tariffs to boost manufacturing. The idea here is to make, for example, foreign cars more expensive, meaning Americans would buy fewer foreign cars.
An aerial view of an auto body parts supplier in Apodaca, Mexico’s Nuevo Leon state, May 1, 2024.
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Alfredo Estrella/AFP
This is where a big contradiction comes in: if Americans buy fewer foreign cars, customs revenue decreases.
And that’s not the only contradiction York sees in Trump’s policies. If Trump threatens to impose tariffs on Mexico or Canada and succeeds in getting them to crack down on immigration or drugs – that is, if Mexico or Canada changed their policies to get Trump not tax them – that would mean no additional income, and no additional protections for American workers.
“The way the new Trump administration talks about it is that they can have the cake and eat it too. But that’s just not the case,” York said.
NPR asked Team Trump to explain how tariffs can achieve all of Trump’s stated goals. They did not respond specifically, saying the tariffs would “protect U.S. manufacturers and workers from unfair practices by foreign companies and markets.”
Higher prices and uncertain incomes
Trump’s tariff proposals go far beyond what he imposed during his first term. He has proposed tariffs of up to 60% on Chinese goods, plus a proposed 25% on Canada and Mexico. He even suggested an overall rate of 10-20% on all imports.
But even high new tariffs would not raise the kind of revenue Trump appears to want. Trump has often talked about the 19th century, a time before the federal income tax, as an era he admires.
“It will make our country rich,” he said during a December press conferencespeaking admiringly of the days of former President William McKinley. “That was when we were proportionally the richest,” Trump said.
During the campaign, Trump even suggested that he wanted to replace income taxes with tariffs.
Experts said it would be impossible. Last year, the tariffs represented only 2% of government revenue.
According to an analysis According to the Peterson Institute for International Economics, the maximum revenue that could be generated from the tariffs threatened by Trump would be $780 billion. This represents around a third of total income tax and corporate tax revenues, and also does not take into account the economic effects of higher tariffs, such as higher prices and slowdown in growth, not to mention retaliation from foreign countries.
Kimberly Clausing co-wrote this analysis and also worked in Biden’s Treasury Department. She stressed that tariff hikes would hurt low-income Americans the most through higher prices — while helping people with higher incomes benefit from Trump’s proposed tax cuts.
“I think a cynical interpretation of what the Trump administration is suggesting is a series of regressive tax cuts that help those at the top of the distribution, and which are financed by the regressive consumption tax that will hit hardest on the poor,” she said. said.
