Trump's proposed tariffs would cost Americans $500 billion a year, think tank says

Peterson Institute researchers wrote in a report that the burden of Trump's proposed tariffs would fall mainly on lower-income households.

• Trump's proposed tariffs could cost Americans $500 billion annually, a think tank estimated.
• The cost of tariffs is often passed onto consumers as producers raise prices.
• A 10% tariff on imports could cost households an extra $1,500 a year, researchers say.

Donald Trump has touted plans to impose tariffs on imports in his campaign for a second presidential term, but those proposals could end up costing Americans half a trillion dollars a year, according to estimates from a Washington DC-based think-tank.

Researchers at the Peterson Institute warned Trump's planned taxes on imports could end up being a huge burden on working-class Americans. The former president's plan to impose a 10% tariff on all imports could end up costing consumers nearly 2% of US GDP, or an additional $500 billion a year, they estimated in a new paper. That's about five times the cost of Trump's tariffs in 2018, when he imposed taxes on imports of steel, aluminum, and other goods.

The plan would hit lower-income households harder, the researchers said.

"As fiscal policy, the Trump agenda amounts to regressive tax cuts, only partially paid for by regressive tax increases. A lower-bound estimate of costs to consumers indicates that the tariffs would reduce after-tax incomes by about 3.5 percent for those in the bottom half of the income distribution."

Economists generally agree that tariffs raise the cost of goods purchased domestically. That's because taxes on imported goods are often passed onto the consumer as producers raise prices – similar to a "one-time burst of inflation," the paper authors said.

"In contrast to Trumps' frequent, and mistaken, claims that foreigners bear the impact of tariffs, economists have long understood that tariffs burden domestic purchasers of imported goods," the paper said. 

Trump's tariff plan also includes a 60% tax on Chinese imports, but even a 10% across-the-board tariff would be the equivalent to an annual $1,500 consumption tax per household, according to an analysis from the Center for American Progress.

"If executed, Trump's latest tariff proposals would increase manifold the distortions and burdens created by the rounds of tariffs levied during the Trump administration (and sustained during the Biden administration) while inflicting significant collateral damage on the US economy," the researchers said.

Other economists have slammed Trump's proposed tariffs as a drag on the economy. The plan could cause inflation to spike and could spark a recession, economic experts have warned.