Trump's tariff schemes would come with huge cost to U.S.

By Ernie Tedeschi / For Bloomberg Opinion

Pundits sometimes claim that U.S. presidential campaigns are devoid of big, consequential policy ideas. That’s clearly not true this time around. Arguably the most profound policy change being proposed in this campaign is former President Donald Trump’s big idea to broadly raise tariffs on imported goods, possibly to levels the U.S. has not seen in many decades.

Tariffs, like all economic policies, come with trade-offs. New analysis of mine at The Budget Lab at Yale University, a nonpartisan fiscal research center, uses economic modeling and evidence to quantify some of these trade-offs. In short, the proposed tariffs will raise some revenue but at a severe — and literal — price tag to the economy.

You can think of a tariff as a bit like a sales tax on items as diverse as sneakers or car parts that are made outside the U.S. This presidential campaign has raised the question of who ultimately bears the burden of tariffs, Americans or foreigners. But this is a settled question in economics: the answer is domestic businesses and consumers, not foreign manufacturers. In fact, in many cases, businesses pass the cost of tariffs along to their customers in the form of higher prices.

Tariffs imposed by the U.S. vary by country and good. Some imports are entirely tariff-free, while some are quite high, such as the current 100 percent levy on certain Chinese goods. The “effective” tariff rate in 2023 — the weighted average tariff paid on all imported goods — was 2.5 percent. This is a bit higher than recent history but still very low relative to the longer term. In the early 1800s, when tariffs were the primary source of federal revenue, Americans had to pay astronomical rates on most imports, with the effective tariff often above 40 percent and at times exceeding 50 percent.

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