Tariffs on imported goods are a favored proposal in the eyes of former President Donald Trump, who has vowed, if he is re-elected, to raise tariffs on all foreign imports up to 20%.
Trump's tariff proposals have fueled election debate, with Democratic presidential nominee, Vice President Kamala Harris taking the opportunity to underscore how steep tariffs could weigh heavily on consumers' finances.
Harris has characterized the tariff proposal as “a national sales tax on everyday products and necessities that we import from other countries.”
Here’s what else you should know about tariffs and how they can impact your finances.
What is a tariff?
Tariffs are taxes governments impose on goods and services imported from another country. Tariffs can be a source of revenue for a country, but can also be used as a barrier to regulate international trade and safeguard domestic industries.
Governments generally impose tariffs for several reasons including to:
- Raise revenues
- Protect consumers and domestic industries
- Safeguard the nation from unfair trade practices
However, taxing imported goods can make those products more expensive to consumers. Tariffs also can make local products more attractive to buyers and spur competitiveness in the market, price gauging by locals — or in some cases, inflation.
Tariffs are still implemented as a “targeted tool” to protect the U.S. against unfair trade practices. However, data show that using tariffs as a revenue source can harm low and middle-income households and benefit those with higher incomes.
Trump and Biden tariff on China
Tariff rates increased significantly under the Trump administration, which led to trade wars with countries like China. Trump imposed nearly $80 billion worth of new taxes on U.S. households by raising tariffs on thousands of products valued at approximately $380 billion.
Simply put, the $79 billion in higher tariffs translated to an average annual tax increase of $625 on the average U.S. household, according to the Tax Foundation. The nonpartisan organization has described Trump’s tariffs as “one of the largest tax increases in decades.”
Notably, the Biden administration kept most of its predecessor's blanket China tariffs in place. President Biden announced tariff hikes on an additional $18 billion of Chinese goods in May. (That amounted to an additional tax increase of $3.6 billion.)
Biden’s tariffs, however, were more selective than Trump’s.
For instance, Biden placed a 50% tariff on semiconductor imports from China. The Peterson Institute for International Economics (PIIE) found the trade was more modest, totaling under $1 billion a year.
Trump tariffs would cost U.S. households thousands
For most of his 2024 presidential campaign run, Trump has pitched a blanket 10% tax on every imported good entering the United States, and a 60% tax on goods imported from China. The 10% measure was projected to cost the typical middle-income U.S. household an annual $2,500 tax increase, according to the Center for American Progress (CAP).
Now, Trump is floating a worldwide tariff as high as 20% if re-elected. The suggestion could potentially burn an even bigger hole in your wallet.
A 20% tariff on all imported goods, with a 60% tax on Chinese goods would amount to about $3,900 more in taxes for a middle-income family in 2026, CAP estimates. That’s up from the $2,500 tax increase associated with Trump's previous proposal.
Where will you see prices increase due to tariffs? Pretty much across the board, from essentials like food and medicine — to toys and apparel. Here are a few examples of tax increases on everyday items.
- $200 increase on food
- $210 increase on medicine
- $300 on electronics
- $220 tax increase on apparel, footwear, and jewelry
Who pays for tariffs?
The answer to who pays for tariffs depends, but several economists point out that consumers often bear the brunt of tariffs. For instance, when the Trump administration imposed punitive tariffs on foreign exporters six years ago — restricting foreign trade hurt consumers the most.
Not only did businesses pass on price increases to consumers, but evidence shows that tariffs also played a role in lower employment and some product stagnation.
President Biden, for example, nearly doubled tariffs on Canadian imports of lumber from a rate of 8.05% to 14.54% effective this year. The National Association of Home Builders (NAHB) has said the measure would have a "detrimental" effect on housing affordability, which has been already struggling due to lack of supply.
"Tariffs are ultimately paid for in large part by consumers and businesses in the domestic economy..." the Tax Foundation underscored during the pandemic.
Are tariffs good or bad?
While every U.S. household would likely see a tax hike under Trump’s tariff plans, the highest earners would benefit the most. That’s because, as PIIE finds, high tariffs often imply a “massive shift of the tax burden from richer taxpayers toward lower-income households.”
Under a 10% worldwide tariff and 60% tax on imported Chinese goods, the Tax Policy Center projects that U.S. households could see declines in after-tax income anywhere from 1.7% to 1.9%. However, those in the top 0.1% would see their after-tax income fall 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 a year) would pay about $320 more in taxes (an after-tax income decline of 1.7%)
- Middle-income households (earning between $63,300 and $113,100) would pay about $1,350 more in taxes (an after-tax income decline of 1.8%)
- The top 0.1% (those earning over $4 million annually) would pay about $133,000 more in taxes (representing an after-tax income decline of 1.4%)
Under a 20% worldwide tariff, the median household could expect after-tax incomes to fall even more. A separate study found that after-tax incomes for the median household could sink by more than $2,600.
Steep tariffs could escalate into another trade war. Trump’s across-the-board 10% hike on tariffs, including from allied countries, could also lead to retaliation from other countries, PIIE argues. For instance, the European Union, Canada, and Mexico retaliated immediately when Trump imposed the steel and aluminum tariffs during his presidency.
“It’s a high stakes game, and what is at stake is the health of the US economy and that of the rest of the world,” the organization recently noted.
'Trump tariffs': Bottom line
Tariffs are on the table this presidential election cycle, as Donald Trump has continued to double down on his proposal to raise the tax on imported goods. Some who oppose this policy see it as a “national sales tax” that could harm those with lower and middle incomes.
Remember that while tariffs can foster less dependence on other countries' goods and promote competition, these taxes can also increase prices for consumers like you.
As the clock ticks down until Election Day on November 5, the Democratic and Republican presidential nominees will likely share more specific proposals regarding their tax agendas. Stay tuned so you can cast a well-informed vote.
