Tariffs as Fiscal Policy
President Donald Trump has claimed his tariffs will raise enough revenue to allow for income tax cuts.
Recent research, however, finds that even at optimal tariff rates, these tariffs
would raise an amount less than one-fifth of federal income tax revenue … generat[ing] efficiency losses nearly equal to the revenue raised.
Tariffs are also
regressive … [and] today’s tariffs are particularly high, variable, and uncertain. This raises compliance costs, reduces investment, creates serious tax administration problems, and encourages corruption and wasteful lobbying efforts.
Lastly, while tariffs do reduce imports, they also reduce exports and invite retaliatory tariffs, which in turn harm US manufacturers.
Tariffs are a blunt instrument that—even without the current volatility, but even more with it—cause efficiency losses, increase compliance costs, and harm the industries they allegedly help.