Tariffs on imported goods are a popular proposal for former President Donald Trump, who has announced that if re-elected he would raise tariffs on all foreign imports to up to 20 percent.
Trump’s tariff proposals have heated up the election debate, with Democratic presidential candidate and Vice President Kamala Harris taking the opportunity to emphasize how high tariffs could put a strain on consumers’ finances.
Harris has characterized by The tariff proposal is “a national sales tax on everyday products and consumer goods that we import from other countries.”
Subscribe Kiplinger’s personal finances
Be a smarter and more informed investor.
Save up to 74%
Sign up for Kiplinger’s free e-newsletter
Profit and prosper with the best expert advice on investing, taxes, retirement, personal finance and more – delivered straight to your email inbox.
Profit and thrive with the best expert advice – straight to your email inbox.
Here’s what else you should know about tariffs and how they can affect your finances.
Tariff definition: How do tariffs work?
Tariffs are taxes that governments impose on goods and services imported from another country. Tariffs can be a source of revenue for a country, but they can also be used as a barrier to regulate international trade and protect domestic industries.
The reasons for imposing customs duties are usually different:
- Increase sales
- Protect consumers and domestic industry
- Protecting the country from unfair trade practices
However, Taxing imported goods can make these products more expensive for consumers. Tariffs can also make local products more attractive to buyers, boost market competitiveness and encourage local price gouging – or in some cases, inflation.
Tariffs will continue to be introduced as a “targeted tool” to protect the United States from unfair trade practices. However, data show that using tariffs as a source of revenue can harm low- and middle-income households and benefit higher-income ones.
Trump and Biden: Tariffs on China
Under the Trump administration, tariffs were significantly increased, leading to trade wars with countries like China. Trump imposed nearly $80 billion worth of new taxes on U.S. households by increasing tariffs on thousands of products valued at around $380 billion.
Put simply, the $79 billion in higher tariffs meant an average annual tax increase of $625 for the average U.S. household. Tax FoundationThe nonpartisan organization called Trump’s tariffs “one of the largest tax increases in decades.”
Notably, the Biden administration has retained most of its predecessor’s blanket China tariffs. President Biden announced tariff increases on an additional $18 billion worth of Chinese goods in May. (This equated to an additional tax increase of $3.6 billion.)
However, Biden’s tariffs were more selective than Trump’s.
For example, Biden imposed a 50 percent tariff on semiconductor imports from China. The Peterson Institute for International Economics (PIIE) found that trade was more modest, at less than a billion dollars a year.
Trump’s tariffs would cost US households thousands
During his 2024 presidential campaign, Trump has touted a flat 10% tax on all imported goods in the U.S. and a 60% tax on goods from China. The 10% measure would cost the typical middle-income U.S. household an annual tax increase of $2,500, according to the Center for American Progress (CAP).
Now Trump is threatening global tariffs of up to 20% if he is re-electedThe proposal could potentially burn an even bigger hole in your wallet.
A 20 percent tariff on all imported goods and a 60 percent tax on Chinese goods would add about $3,900 to taxes for a middle-income family in 2026, CAP estimates. That’s more than the $2,500 that Trump’s previous proposal had associated with a tax increase.
Where will tariffs cause price increases? Pretty much everywhere, from essentials like food and medicine to toys and clothing. Here are some examples of tax increases on everyday items.
- $200 more for groceries
- $210 increase for medication
- $300 for electronics
- Tax increase of USD 220 on clothing, shoes and jewelry
(Image credit: Getty Images)
Who pays the tariffs?
The answer to the question of who pays the tariffs depends, but several Economists point out that consumers often bear the brunt of tariffs. For example, when the Trump administration imposed punitive tariffs on foreign exporters six years ago, the restrictions on foreign trade hit consumers the hardest.
Not only did companies pass on the price increases to consumers, but there is evidence that the tariffs also contributed to employment losses and some product stagnation.
President Biden, for example, has nearly doubled tariffs on Canadian lumber imports from 8.05% to 14.54%, effective this year. The National Association of Home Builders (NAHB) has said the measure will have a “detrimental” impact on housing affordability, which is already struggling due to a lack of supply.
“Tariffs are ultimately paid to a large extent by consumers and businesses in the domestic economy…,” the Tax Foundation stressed during the pandemic.
Are tariffs good or bad?
While every U.S. household would likely see a tax increase under Trump’s tariff plans, top earners would benefit the most. Because, as PIIE notes, high tariffs often mean a “massive shift of the tax burden from wealthier taxpayers to lower-income households.”
Under a 10% global tariff and a 60% tax on imported Chinese goods, the Tax Policy Center Projects that US households could see a decline in net income of between 1.7% and 1.9%. However, the top 0.1% would see net income decline by about 1.4%.
In dollar terms, Trump’s plans to impose higher tariffs would mean:
- Lower-income households (those earning up to $32,800 per year) would pay about $320 more in taxes (a 1.7 percent decrease in after-tax income).
- Middle-income households (those earning between $63,300 and $113,100) would pay about $1,350 more in taxes (a 1.8% decrease in after-tax income)
- The top 0.1% (those earning over $4 million annually) would pay about $133,000 more in taxes (a 1.4% decrease in after-tax income).
A global tariff of 20% could cause the after-tax income of the average household to fall even further. study found that the average household’s net income could fall by more than $2,600.
High tariffs could lead to another trade war. Trump’s 10% overall tariff increase, including against allied countries, could also lead to retaliation from other countries, argues PIIE. For example, the European Union, Canada and Mexico reacted immediately when Trump imposed the steel and aluminum tariffs during his presidency.
“There is a lot at stake in this game, and the health of the U.S. economy and the rest of the world is at stake,” the organization recently stated.
“Trump tariffs”: Conclusion
Tariffs are on the table this presidential campaign as Donald Trump has doubled down on his proposal to raise taxes on imported goods, a measure some opponents of which see as a “national sales tax” that could hurt low- and middle-income people.
Keep in mind that while tariffs can reduce dependence on other countries’ goods and encourage competition, these taxes can also raise prices for consumers like you.
Between now and Election Day on November 5, Democratic and Republican presidential candidates will likely have more concrete proposals on their tax plans. Stay tuned so you can cast an informed vote.
See also:
