Key Findings

• The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products, which is equivalent to one of the largest tax increases in decades. Based on 2021 import levels and country exemptions, the tariffs amounted to a $52.6 billion tax increase in 2021.
• We estimate retaining the tariffs put in place under the Trump administration will reduce economic output, income, and employment.
• The Biden administration has kept most of the Trump administration tariffs in place, except for a five-year suspension of tariffs that were part of a WTO aircraft dispute and replacement of certain steel and aluminum tariffs with tariff rate quotas.
• We estimate the tariffs still in effect will reduce long-run GDP by 0.22 percent, wages by 0.14 percent, and employment by 173,000 full-time equivalent jobs. 

Related: Tariffs & Trade Research

Introduction

The Trump administration imposed and threatened several rounds of tariffs, and other countries responded to these measures. Using the Tax Foundation Taxes and Growth Model, we analyze the effects of imposed, threatened, and retaliatory tariffs on the United States economy. Tariffs damage economic well-being and lead to a net loss in production and jobs and lower levels of income. Tariffs also tend to be regressive, burdening lower-income consumers the most.

According to the Tax Foundation model, the tariffs imposed under the Trump administration and remaining in place under the Biden administration will reduce long-run GDP by 0.22 percent ($55.7 billion) and wages by 0.14 percent and eliminate 173,000 full-time equivalent jobs.

Other countries imposed retaliatory tariffs on U.S. exports, which we estimate will further reduce U.S. GDP by 0.04 percent ($9.4 billion) and eliminate 29,000 full-time equivalent jobs.

Tariffs Raise Prices and Reduce Economic Growth

Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.

Tariffs could reduce U.S. output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.

Alternatively, the U.S. dollar may appreciate in response to tariffs, offsetting the potential price increase on U.S. consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower U.S. output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.

Tariffs Imposed by the United States

The Trump administration imposed several rounds of tariffs, which we estimated amounted to a total tax increase of nearly $80 billion during the administration. Under the Biden administration, most tariffs have stayed in place except for a suspension of certain tariffs on imports from the European Union and replacement of tariffs with TRQs on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan. Based on 2021 import levels, a total of $52.6 billion of tariffs remains in place.

Note the total revenue generated will be less than what the tariffs generate, because tariffs reduce real income, which offsets some tariff revenue by lowering other tax revenues.

Section 232, Steel and Aluminum

• In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.

If 2018 imports equaled 2017 levels, the tariffs could have cost U.S. firms nearly $9 billion. For example, the value of imported steel totaled just over $29 billion in 2017. If the 25 percent tariff were levied on the same level of imported steel, the tax would total roughly $7.3 billion. Similarly, if a 10 percent tariff were applied to the $16.8 billion worth of aluminum imported in 2017, the tax would total nearly $1.7 billion. Several countries, however, have been excluded from the tariffs.

• Early on, the U.S. reached agreements to permanently exclude Australia from steel and aluminum tariffs, use quotas for steel imports from Brazil and South Korea, and use quotas for steel and aluminum imports from Argentina.
• In May 2019, President Trump announced that the U.S. was lifting tariffs on steel and aluminum on Canada and Mexico.
• In 2020, President Trump expanded the scope of steel and aluminum tariffs to cover certain derivative products, totaling approximately $0.8 billion based on 2018 import levels.
• In August 2020, President Trump announced that the U.S. was reimposing tariffs on aluminum imports from Canada. The U.S. imported approximately $2.5 billion worth of non-alloyed unwrought aluminum, resulting in a $0.25 billion tax increase.
• In September 2020, the U.S. eliminated the 10 percent tariff on Canadian aluminum that had been reimposed in August 2020.
• In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will.
  • TRQs for the European Union took effect January 1, 2022. Based on 2018 import levels, the TRQs will reduce tariff revenue by approximately $1.7 billion.
  • TRQs for Japan take effect April 1, 2022. Based on 2018 import levels, the TRQs will reduce tariff revenue by approximately $0.4 billion.
  • TRQs for the UK take effect on June 1, 2022. Based on 2018 import levels, the TRQs will reduce tariff revenue by approximately $0.1 billion.
  • Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some U.S. businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.

Tariffs on steel and aluminum and derivative goods currently remain in place for several countries under the Biden administration and account for $3 billion of the $75 billion in tariff revenue, based on 2018 import values.

Section 301, Chinese Products

The United States is currently imposing a 25 percent tariff on approximately $250 billion of imports from China and a 7.5 percent tariff on approximately $112 billion worth of imports from China.

Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which concluded in a March 2018 report that found China was conducting unfair trade practices. The same day, President Trump announced tariffs on up to $60 billion of imports. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. Stage one of the tariffs began July 6, 2018, on $34 billion worth of Chinese imports, and stage two, the remaining $16 billion, went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.

The Trump administration imposed stage three of Section 301 tariffs in September 2018—10 percent on $200 billion worth of goods from China. This stage was scheduled to increase to 25 percent beginning in January 2019, but the increase was delayed until it was allowed to go into effect in May 2019. Other tariffs threatened on China under the previous administration include:

• In August 2019, the administration announced plans to impose a new 10 percent tariff on approximately $300 billion worth of additional Chinese goods beginning on September 1, 2019. The administration followed this announcement with a schedule change and certain exemptions—imposing stage 4a, a 10 percent tariff on $112 billion of imports starting September 1, 2019, and stage 4b, on $160 billion on December 15, 2019.
• Then on August 23, the administration decided that stage 4 tariffs would be 15 percent rather than the previously announced 10 percent—stage 4a has taken effect, while stage 4b is scheduled to go into effect on December 15, 2019.
• In December 2019, the administration reached a “Phase one” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and in early 2020 reduce the stage 4a tariffs from 15 percent to 7.5 percent.

Section 301 tariffs on China currently remain in place under the Biden administration and account for $71 billion of the $75 billion in tariff revenues, based on 2018 import values.

WTO Dispute, European Union

In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorizes the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, tariffs of 10 percent were to be applied to aircrafts and 25 percent on agricultural and other products (our estimate uses the average of the two rates).

Tariffs on the European Union were suspended in summer 2021 for five years under an agreement reached by the Biden administration.

Section 201, Solar Panels and Washing Machines

In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine and solar cell and module imports as the result of a Section 201 investigation.

We estimated the solar cell and module tariffs amount to a $0.2 billion tax increase based on 2018 import values and quantities of four 8-digit Harmonized Tariff Schedule subheadings, given on page 12 of this report. The United States imported 6.8 billion watts worth a value of $4.9 billion in 2018 under the four subheadings. The Biden administration extended the solar panel tariffs at a rate of 14.75 percent on imports above a 5 gigawatt exemption.

We estimated the washing machine tariffs amount to a $0.4 billion tax increase based on 2018 import values and quantities of six 8-digit Harmonized Tariff Schedule subheadings, given on page 8 of this report. The United States imported $1.3 billion worth of machines and $114 million worth of parts in 2018. For most of 2022, a tariff of 14 percent applies to in-quota washing machines and parts and a tariff of 30 percent applies to all subsequent washing machines and parts.

Tariffs on solar panels and washing machines currently remain in place under the Biden administration and account for $0.6 billion of the $75 billion in tariffs revenues, based on 2018 import values.

Model Results

According to the Tax Foundation model, the tariffs imposed under the Trump administration and left in place under the Biden administration would reduce long-run GDP by 0.22 percent ($56.7 billion) and wages by 0.14 percent and eliminate 173,000 full-time equivalent jobs.

The 0.22 percent reduction in long-run GDP is about 13.5 percent of the total long-run impact of the Tax Cuts and Jobs Act, which we estimated to raise GDP by 1.7 percent in the long run.

Trade Volumes Since Tariffs Were Imposed

Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs. Reduced trade means fewer options for U.S. consumers and higher prices.

Retaliatory Tariffs Imposed and Threatened

Several jurisdictions have proposed and imposed retaliatory tariffs against the United States as laid out in the accompanying tables.

Current retaliation against Section 232 steel and aluminum tariffs target more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion. Tariff revenues for Turkey, India, Russia, and Canada were based on news reports. Mexico, Canada, and the European Union have canceled their Section 232 retaliatory tariffs.

China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of U.S. goods, for an estimated tax of nearly $11.6 billion. Note the stage 4b tariffs are not included in the analysis of economic effects due to their cancellation under Phase 1 of the U.S.-China trade deal. The deal also resulted in a reduction of tariffs under Stage 3 and 4a. 

We estimate the retaliatory tariffs stemming from Section 232 and Section 301 actions total to approximately $13.2 billion in tariff revenues. Retaliatory tariffs, however, are not paid to the United States government, but to the governments of the countries which impose the tariffs, so they do not increase U.S. revenue.

Model Results

We estimate the retaliatory tariffs will reduce U.S. GDP by 0.04 percent ($9.4 billion) and reduce full-time employment by 29,000 full-time equivalent jobs. Unlike the tariffs imposed by the United States, which raise federal revenue, tariffs imposed by foreign jurisdictions raise no revenue for the U.S. but result in lower U.S. output.