Republican presidential candidate Donald Trump plan to revive U.S. manufacturing and reduce costs by using tariffs to generate revenue and pressure foreign countries. However, economists caution that his approach could increase consumer prices and disrupt global trade, with uncertain benefits for domestic production.
Trump’s proposal is to use tariffs to collect billions in revenue while targeting countries like China, which he claims have been exploiting the U.S., and encouraging businesses to bring manufacturing back to American soil. “Other countries are finally going to pay us back for all we’ve done for the world over the past 75 years,” Trump stated during a September debate with Democratic nominee Kamala Harris.
He has pledged a 10 to 20 percent across-the-board tariff on all imports and a 60 percent tariff on Chinese goods, recently even threatening a 200 percent tariff on cars made in Mexico. Trump described tariffs as a “beautiful word” in a Fox News interview, calling them essential to making America “rich again” and preventing the country from collapsing without them.
Despite Trump’s claims, it is American companies, not foreign governments, that pay import taxes on overseas goods. These businesses often pass on the increased costs, potentially contributing to inflation. Alongside tariffs, Trump plans to extend expiring tax cuts and further reduce corporate taxes. However, according to the Tax Foundation, the proposed tariffs could negate the benefits of his tax policy without fully compensating for the loss in tax revenue.
The Peterson Institute for International Economics (PIIE) predicts that U.S. inflation could rise by 1.3 percentage points above the baseline next year if Trump imposes a 10 percent universal tariff and other countries retaliate. Significant increases in tariffs on Chinese products could also further fuel inflation.
Other analysts, such as Bernard Yaros from Oxford Economics, estimate that a Trump presidency could raise inflation by 0.6 percentage points at its peak. Previously, companies faced higher costs as imported materials became more expensive. “If there is a 10 to 20 percent universal tariff, we will undoubtedly see higher prices on store shelves,” said Kyle Handley, a professor at UC San Diego.
Moreover, bringing manufacturing back to the U.S. quickly is unlikely. “We haven’t produced televisions domestically in decades,” Handley noted, adding that U.S. factories currently lack the capacity to meet consumer demand.
In his Fox interview, Trump dismissed the notion that tariffs would drive up consumer prices. However, Handley estimated that supply chain disruptions had already impacted exporters as much as a 2 to 4 percent tariff would. According to companies interviewed by AFP, some of these costs had to be passed on to consumers.
A 2019 study published in the *Journal of Economic Perspectives* found that, by the end of 2018, U.S. import tariffs were costing consumers and importers an additional $3.2 billion monthly.
Trump’s tariff plans could reduce U.S.-China trade by 70 percent, redirecting or eliminating hundreds of billions of dollars’ worth of exchanges, according to Oxford Economics. U.S. trade volumes could decline by 10 percent, becoming more concentrated on North American and free trade agreement partners.
While the proposed tariffs could initially raise around $500 billion in annual revenue, the rerouting of trade from China could eventually reduce this figure to $200 billion, Yaros noted. Additionally, revoking China’s “permanent normal trade relations” status, which protects it from certain U.S. tariffs, could increase inflation by 0.4 percentage points in 2025, PIIE added.
Although Trump advocates for a “reciprocal trade act,” imposing the same taxes on countries that tax U.S. exports, Yaros believes it is unlikely to pass since it would require bipartisan support in Congress.
Trump also promises to eliminate inflation, a key voter concern, by reducing energy costs by half within a year, likely through deregulation of the domestic oil and gas sector. However, Yaros is skeptical that this would significantly increase production, as it would depend on the actions of major energy companies, which are accountable to shareholders.
To lower food costs, Trump suggests restricting foreign agricultural imports. However, economists warn that import barriers could provoke retaliatory measures, potentially harming U.S. farmers who rely heavily on exports.
