President Trump is proud of the “MANY billions of dollars” the U.S. government is taking in in new tariffs. Problem is, those are taxes paid by Americans, and some of the money is going to other Americans in a kind of shell game that harms the U.S. economy more than it helps.
The Treasury Department took in $50 billion in customs duties during the nine months of the government’s fiscal year that ended in June. That’s up from $28 billion during the same period a year earlier, or an increase of $22 billion. Most of that is from the new Trump tariffs on imports from China and other countries. Annualized over 12 months, the total haul from new tariffs would be around $30 billion.
Trump has threatened to impose more tariffs on Chinese imports beginning Sept. 1. Moody’s Analytics estimates that if that happens, tariffs could generate about $100 billion per year in federal revenue. Two years ago—before Trump imposed any new tariffs—customs duties amounted to just $41 billion. So the Trump tariffs might generate an extra $60 billion or so each year if they go into effect and stay there.
With annual deficits approaching $1 trillion, any new source of revenue might seem welcome. But new revenue from the Trump tariffs comes with two caveats. First, it’s tax money paid by Americans, which leaves businesses and consumers with less to spend on other stuff. Second, the Trump administration is spending some portion of the new tariff revenue on bailouts for farmers hurt by the trade war with China. On the whole, economists say these tradeoffs hurt GDP growth, rather than boosting it.
Spending must be authorized by Congress
The Treasury Department can’t tap tariff revenue or any new source of funds for any purpose it wants. With only a few exceptions, spending by the executive branch must first be authorized by Congress. “It’s not free money with which the government can do anything it wants,” says William Gale of the Brookings Institution.
But a federal program dating to the 1930s lets the Agriculture Department spend up to $30 billion per year to help farmers in a variety of ways, if necessary. And the Trump administration has tapped that program to offer subsidies to farmers who have lost business to China, which has shut off American agricultural imports to retaliate against the Trump tariffs. The Trump administration spent $12 billion in farmer subsidies last year, raising that to $16 billion this year—for a total of $28 billion in farmer bailouts linked to the trade war.
Since all federal revenue effectively goes into the same pot, the Trump tariffs paid by American importers are helping offset the Trump bailouts offered to farmers. “The tariffs go into general revenue,” says William Hoagland of the Bipartisan Policy Center. “You can make the argument that whatever we pay out in farmer subsidies is paid for by some of the tariff receipts that come in.”
That might sound like a harmless transfer of money from one set of Americans to another. But the disruption to trade, the uncertainty it’s causing and the lingering cost of lost markets is a net negative. Moody’s Analytics estimates that the tariffs Trump has imposed so far have cost 0.3% of GDP and killed 300,000 jobs. If the new tariffs go into effect, the cost will rise to 0.5% of GDP. “President Trump’s escalation of the trade war with China has increased the specter of recession,” Moody’s Analytics’ chief economist Mark Zandi wrote recently.
Farmers could still get bailouts in a recession. But a U.S. economic downturn would crimp domestic sales on top of the woes in foreign markets. And tax receipts from most other sources would drop along with economic activity. A few extra billion in tariff revenue probably isn’t worth it.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman