President Trump has argued that some of the tariffs he’s imposing this week could help the government raise over $1 trillion in the next year or so, helping to reduce the national debt and even potentially offset some income taxes.
But economists are skeptical that these tariffs can bring in as much as Mr. Trump claims, as consumers will likely reduce their spending on foreign goods when prices go up.
Tariffs are often charged as a percentage of the price that importers pay foreign sellers. They aren’t paid by foreign nations, but by U.S. companies who often pass the cost to American consumers by raising prices.
“You’re going to see billions of dollars, even trillions of dollars coming into our country very soon in the form of tariffs,” the president said last week.
While economic analyses indicate Mr. Trump’s tariffs could meaningfully increase annual tariff revenue, the president’s trillion-dollar estimates are significantly higher than those provided by think tanks and even some of his own officials.
How much Trump’s new auto tariffs could generate
In a recent news conference, White House staff secretary Will Sharf estimated that Mr. Trump’s 25% tariff on vehicles and auto parts imported into the U.S. could raise “roughly $100 billion in new revenue.” At the same news conference, Mr. Trump claimed moments later “anywhere from $600 billion to $1 trillion will be taken in over the relatively short-term period, meaning a year from now.”
The White House did not respond to a request to clarify the source of the discrepancy.
The Yale Budget Lab, a nonpartisan think tank, has estimated that the auto tariffs could raise roughly $600 billion to $650 billion over a period of 10 years — not in a single year, as Mr. Trump suggested.
“On an annual basis on average that’s $60 to 65 billion. We’re not even close to trillions,” said Ernie Tedeschi, director of economics at the Yale Budget Lab.
The Yale Budget Lab also found that motor vehicle prices could rise by 13.5% on average for Americans, or an additional cost of $6,400 for an average new car.
How much Trump’s tariffs on Canada, Mexico, and China could generate
The same researchers found Mr. Trump’s 25% tariff on goods from Canada and Mexico, which are slated to go into effect this week, along with the additional 20% tax on Chinese imports that the president has already put in place, could generate roughly $150 billion annually, or up to $1.5 trillion over 10 years. They also found the average household could lose $1,600 to $2,000 each year in inflation-adjusted disposable income as a result of higher prices.
Meanwhile, Goldman Sachs previously made higher estimates that Trump’s increased tariffs on these countries could generate roughly $300 billion in new income per year.
Either would be a meaningful increase over the $88 billion in customs duties collected at ports of entry in 2024.
However, economists argue there’s a ceiling to tariff revenue that remains below $1 trillion per year.
The U.S. imported about $3.3 trillion in foreign goods last year, according to the U.S. Bureau of Economic Analysis. The Peterson Institute of International Economics estimated that even if Mr. Trump were to apply a 50% tariff to foreign imports from every country — which exceeds his stated plans — it would generate at most about $780 billion annually.
“If you make something 50% more expensive, you don’t expect people to buy the same amount,” said Kimberly Clausing, a senior fellow at the Peterson Institute.
Could tariff revenue replace income taxes?
Mr. Trump has repeatedly floated the idea of using his tariff agenda to offset or even replace income taxes.
“Under the American first economic model, as tariffs on other countries go up, taxes on American workers and businesses will come down,” Trump said in a speech to the House GOP in January.
Income taxes generate over $2 trillion per year, according to the Department of the Treasury. Even if a president imposed 50% tariffs on all imports, the income generated would represent less than 40% of what income taxes bring in, according to the Peterson Institute.
“The problem is it can’t raise anywhere near the amount of revenue you’d need to scuttle the income tax. And that’s the really, I think, ironclad point,” said Scott Lincicome, a vice president of general economics and trade at the Cato Institute, which is a libertarian think tank.
Historians on U.S. trade note that tariffs have not been viewed as a primary way to raise revenue since income taxes were introduced in 1913.
In 2024, tariff collections on imports represented just 1.7% of the more than $4.9 trillion in total federal revenue. And according to the Congressional Research Service, tariffs have not accounted for much more than 2% of federal revenue in the last 70 years.
Aimee Picchi
contributed to this report.
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