President Trump tweeted Sunday morning that his tariffs are “working big time” and made a bizarre claim that the money raised from these new import taxes will go a long way to helping pay down America’s large debt. (Short answer: That’s not what will happen).
Trump portrays the tariffs as a tax on foreigners, but the reality is that tariffs are taxes on U.S. companies and consumers. When a big U.S. retail chain or an equipment manufacturer has to pay 10 or 25 percent more to get steel from Canada or a certain part from China, that U.S. company has to pay the tax when it imports that item. U.S. businesses either eat that extra cost or pass it along to consumers.
There are already signs that prices are rising because of Trump’s tariffs. Coca-Cola is raising prices on its drinks because his aluminum tariffs are making its cans more expensive, the company says. Winnebago, maker of RVs, also has raised some of its prices, blaming higher steel and aluminum costs. Over time, U.S. companies are likely to switch suppliers or change their products to use less of the higher-costing goods, but that doesn’t happen right away.
In terms of Trump’s claim that money raised from the tariffs will help pay down the debt, the United States has a debt of over $21 trillion. The president has imposed tariffs on $85 billion worth of foreign goods so far, meaning that, at most, his tariffs would raise about $21 billion, a minuscule percentage (0.1 percent) of the debt.
Since taking office, Trump has added substantially to the debt, with a large tax cut and additional government spending on the military and various domestic priorities. In total, he has added about $1.6 trillion to the debt since taking office (higher if you take into account additional interest charges), according to the Congressional Budget Office. The money raised from the tariffs does little to counterbalance all the money Trump has added to the debt.
He has also announced $12 billion in aid to farmers hurt by the tariffs. That is additional spending that further reduces the money raised from his tariffs by nearly half.
There are some ways that Trump’s tariffs do hurt foreign companies. Over time, U.S. companies are likely to buy fewer products from China and elsewhere as they look for alternative suppliers. But in the meantime, foreign nations are imposing tariffs on some U.S. goods such as soybeans and whiskey. Many farmers are unsure who will buy their crops this year and next because of the trade war, and some small manufacturing companies have started laying people off.
Trump and his team have repeatedly argued that a little short-term pain from the tariffs will be worth it in the end when the president negotiates new trade deals and terms with other nations that lower trade barriers. He has begun serious discussions with the European Union to potentially reduce some tariffs, but his battle with China shows no sign of ebbing. He is deliberating whether to impose tariffs on an additional $216 billion worth of Chinese products in coming weeks.
The bottom line: The tariffs do raise money for the U.S. government, but it’s a small amount — and it’s mostly being paid for by Americans.