This week on Facing the Future we talked with Alex Durante, senior economist at the Tax Foundation and co-author of a running update called “Trump Tariffs: The Economic Impact of the Trump Trade War.” The update includes a timeline of all tariff policies announced since President Trump took office and breaks them down into country-specific tariffs, “reciprocal” tariffs, product-specific tariffs, and retaliation from our trading partners.
The Tax Foundation has found that the tariffs would raise about $2.1 trillion in revenue over the next 10 years, far less than the $6 trillion claimed by the Trump Administration. More significantly, Durante and his colleagues estimate that the tariffs would reduce U.S. gross domestic product (GDP) by 0.8 percent – before foreign retaliation is accounted for – and by 1.0 percent including foreign retaliation announced as of April 10. After-tax income would fall by an average of 1.2 percent and amount to an average tax increase of $1,243 per U.S. household in 2025, according to the Tax Foundation findings.
In Durante’s view, the Trump Administration has not been clear about its objectives for the tariffs. “I think what’s going on right now,” he said, “is that the administration is flying by the seat of its pants, behaving erratically, and the objectives are just unclear. We’ve heard multiple different goals for these tariffs, and a lot of them were in contradiction with each other. So we’ve heard that, for instance, they want to use the tariffs to raise revenue. Well, that’s difficult to do because the whole point of a tariff is to encourage Americans to buy fewer goods from abroad, and if they do that because of the tariff that’s actually less revenue getting remitted to the Treasury.”
In the same vein, Durante said, “the so-called ‘reciprocal’ tariff that we impose on other countries gets to another element about how the objectives are not clear even within the Administration.”
“You have the Treasury Secretary, Scott Bessent, saying, ‘The goals are actually to get to a zero tariff world. We want countries to impose zero tariffs on us, and if they agree to do that, we will reciprocate and impose zero tariffs on them.’ But then you have other folks in the administration, like Peter Navarro, saying, ‘No, actually, it doesn’t matter what tariffs these countries impose on us. The issue that we really care about is the trade deficit. And as long as we’re running trade deficits with these countries we’re not going to be rescinding the tariffs.’”
Durante said that using trade deficits as a basis for tariffs is unrealistic because “some countries are just simply better at doing things than we are, and they’re more able to produce certain goods that we can’t produce. So, for instance, a country like Indonesia produces certain agricultural goods that we can’t produce in the U. S. because we have a different climate. So what do we do? We buy more goods from them than we sell to them. And that’s also because they are a poorer country than us, and there’s really just no world in which we are going to be selling more to Indonesia than they sell to us.”
The likely effects of the tariffs are made more difficult to project because they are outside recent norms. “We are in somewhat uncharted territory,” Durante said. “We estimate the current tariff actions are pushing tariffs the highest they’ve been in roughly a century with an overall average tariff rate of about 11.3 percent. If the reciprocal tariffs fully go into effect after 90 days that rate will be pushed close to 20 percent.”
Durante said he was more concerned about the recessionary impact of the tariffs than the inflationary impact. He explained that “The way to think about this is that if I have to pay more for goods that use tariff inputs, those goods are going to be priced higher. If I’m paying more for those goods, that’s less money I have to spend elsewhere in the economy, say, like the services sector, which is a very large share of the economy. If that’s the case, that means that prices rise in, say, the consumption sector, but they fall elsewhere in the economy and on net there’s no overall change in inflation.”
He cautioned, however, that “if the Fed, observing that economic growth is starting to slow because of the tariffs, decides to lower interest rates and expand the money supply because they fear an oncoming recession, that would have an inflationary impact.” The Fed will have to be careful, Durante said, to avoid the “stagflation” experienced in the 1970s (i.e., a stagnant economy with rising inflation).
Looking ahead to the coming congressional negotiations over a major tax and spending reconciliation bill, Durante observed, “We do have a looming fiscal crisis in the U.S. and especially with what interest rates currently are we cannot really afford at this point to pass very large deficit financed tax cuts. Republicans have to really think hard about what elements of spending they want to cut, and also what are some other tax expenditures we could eliminate. Maybe when the interest rates were near zero and the interest costs were not as high, we were able to get away with this stuff. I think this is a different environment. And I think that’s going to require tough decisions to be made.”
Hear more on Facing the Future. Concord Coalition Senior Advisor Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
