Former President Donald Trump’s plan to raise tariffs won’t come cheap and according to a new bipartisan study, will hit some states harder than others.
Trump has pledged to impose a tariff as high as 20% on all foreign imports and an additional punitive 60% tax on imports from China. Trump has also floated the idea of eliminating all income taxes in favor of tariffs. (More on that later.)
As Kiplinger has reported, the controversial policy is said to raise trillions in revenue, but it would fail to solve the deficit and cost U.S. consumers more each year.
Those facing the largest price burden would reportedly be in states in the Midwest and South, the Tax Policy Center (TPC) found, their revenue is more reliant on trade compared to other regions of the country.
“Trump’s proposed tariffs would create an entirely new policy tradeoff calculation, and the costs of that policy would not be spread equally across the 50 states,” Robert McClelland and Richard Auxier of the TPC wrote in their report.
Replacing income tax with tariffs?
Understanding the impact of tariffs is important, especially since Former President Trump recently pitched the idea of replacing federal income taxes with tariffs.
During a campaign appearance on Joe Rogan's podcast, Trump expressed openness to this radical shift in the U.S. tax system. He referenced the presidency of William McKinley, whom he called "the tariff king," and praised the supposed economic prosperity of the late 1800s.
Trump's tariff proposal includes implementing a universal tariff of 10% or 20% on all imports, with an even higher rate for Chinese goods. When questioned about the seriousness of his idea, Trump responded, "Yeah, sure. Why not?"
Trump's running mate, Sen. JD Vance, described the proposal as not "realistic." The Tax Foundation has said, "Trump's income tax math doesn't add up."
Trump tariff: Which states would be hurt the most
To calculate how Trump’s proposal to hike tariffs would impact the United States, the Tax Policy Center examined the distribution of imports state-by-state.
Nationally, imports totaled about 11% of U.S. GDP last year, but there are 11 states where they made up 15% or more of that state’s economy.
Delaware, Georgia, Kentucky, Illinois, Indiana, Michigan, Mississippi, New Jersey, Rhode Island, Tennessee, and Wisconsin are among them.
“Existing tariffs are most consequential to the economies of states in the Midwest and South because those are the states where imports total the largest share of GDP,” the TPC researchers wrote in the report.
The entire U.S. would be impacted by higher tariffs
On average, Trump’s proposed 60% tariff on goods from China and 10% tariff on goods from all other nations would increase tariff payments as a share of state GDP by 1.5 percentage points across all 50 states and the District of Columbia.
But the largest percentage point increases would occur in Kentucky, which would see tariff payments as a share of state GDP jump by 4.1 points.
This is followed by Indiana (3.9 points), Tennessee (3.6 points), Mississippi (3.5 points), and Michigan (2.8 points). The smallest increase would occur in South Dakota (0.3 points).
- Overall, tariff payments would total more than 3% of the state GDP: in Illinois, Michigan, and Wisconsin.
- It would total more than 4% of the state GDP in Kentucky, Indiana, Mississippi, and Tennessee.
- As noted, Kentucky would bear the largest total tariff payment, with tariff payments totaling nearly 5% of its state GDP.
All told, tariff payments would total more than 2% of state GDP in 20 states, the TPC revealed.
Consumers would pay the price from tariffs
Trump’s tariff plan has been a centerpiece of his campaign. At one point, he even suggested a 100% tariff on countries that leave the U.S. dollar as well as “every single car coming across the Mexican border.”
The former president has argued that tariff hikes could:
- Reduce child care costs
- Lower food prices
- Create more factory jobs
- Reduce the federal deficit
However, many economists aren’t convinced and have debunked some of Trump’s claims. They warn consumers will most likely pay thousands more a year for goods and services due to the proposed tariff policy.
- For instance, a 20% blanket tariff on all imports with a 60% tariff on China, would cost the typical U.S. household with middle-income $2,600 a year.
- That’s up from a $1,700 loss in after-tax income if he were to raise tariffs by 10%, according to the Peterson Institute for International Economics
- The Committee for a Responsible Federal Budget predicts that Trump’s campaign proposals would increase the federal debt by $7.5 trillion over the next decade.
At the same time, Democratic presidential nominee Vice President Kamala Harris also slammed Trump’s tariff plans, calling it a “national sales tax” that would raise prices on middle-class families by nearly $4,000 a year.
“Research shows that tariffs were passed on to consumers and businesses rather than being paid by the exporting nations.”
Why tariffs matter
Tariffs matter since they can increase the costs of goods and services you rely on and impact your budget.
With the U.S. presidential election decided, it's important to stay informed of proposed tax policies and how they may shape the county’s economic future.
