Overall, most economic and financial experts said additional tariffs would shave a few basis points off of GDP growth, and would create inflationary pressure as their cost passes through to consumers and opportunistic domestic producers seek to match that price increase. One expert even expressed concern that they may contribute to fostering a "stagflationary environment," hurting U.S. household expenses, jobs and U.S. assets.
Former U.S. President Donald Trump and Vice President Kamala Harris traded barbs on many topics during the Sept. 10, 2024, presidential debate, including the subject of tariffs on foreign imports. Harris said Trump "invited trade wars" when he imposed sweeping tariffs during his administration and branded his future proposal to increase tariffs on Chinese goods a "sales tax":
My opponent has a plan that I call the Trump sales tax, which would be a 20% tax on everyday goods that you rely on to get through the month. Economists have said that Trump's sales tax would actually result for middle-class families in about $4,000 more a year because of his policies and his ideas about what should be the backs of middle-class people paying for tax cuts for billionaires.
Following the debate, Snopes readers wanted to know whether tariffs protect or harm their jobs and wallets.
Trump has indeed proposed an additional 60% tariff on Chinese goods and a 10% tariff on all other imported goods. He also evoked the possibility of raising the latter, universal tariffs to 20%.
Tariffs are taxes on imports. They are a protectionist measure designed to shield domestic industries from foreign competition, or as a punitive move against importers who use unfair trade practices, such as keeping their costs artificially low by keeping their currency weak, stealing technology or using forced labor -- as is the case for China. Their advocates claim they can save industries and jobs, and keep trading partners in line, as we outline below.
But tariffs also can have economic consequences for the country that imposes them. A thorough examination of the research into Trump's 2018-19 tariffs, as well as several papers that aimed to estimate the cost of his proposed tariffs, revealed that most experts agreed tariffs would cost the U.S. economy more than they would protect it, as we also detail below.
Economists have long considered the impact of tariffs and whether their cost would be passed on to consumers -- that is, whether the cost of goods people buy will be higher because of these tariffs. There are three stages at which the tariffs can be absorbed:
A consensus of economic research has shown that the "pass-through" to consumers has been near-complete for the tariffs Trump imposed on China and other importing countries in 2018 and 2019, most of which President Joe Biden has kept in place. Therefore, when estimating the effects Trump's proposed tariffs would have if he is reelected in November 2024, economists said the effect would be similar, and consumers should expect to assume the cost of nearly all new tariffs.
Starting in 2018, Trump began imposing "safeguard tariffs" on solar panels and washing machines, and also on steel, but then started investigating the introduction of more tariffs for other sectors of the economy. China retaliated immediately, setting off a trade war that lasted through 2019. While the countries found a deal in 2020, mutual purchases fell short. Later, in 2022, the Biden administration either extended or reinstated most of these tariffs.
In 2020, a group of economists led by Pablo Fajgelbaum of the University of California, Los Angeles calculated that this first round of tariffs and retaliatory measures from trading partners had resulted in a loss to firms and consumers who buy imports of $51 billion, or 0.27% of gross domestic product. In that same study, they showed that the effects of tariffs had been unequal across the U.S., and that Republican counties had been hit the hardest.
In 2022, Fajgelbaum and Amit Khandelwal, of Yale University, reviewed several studies on the effects of the U.S.-China trade war and found the tariffs had near-fully filtered down to those who buy imports. "The main takeaways from this research are that U.S. consumers of imported goods have borne the brunt of the tariffs through higher prices, and that the trade war has lowered aggregate real income in both the United States and China, although not by large magnitudes relative to GDP," they wrote.
In an email, Fajgelbaum explained the limited effect on overall GDP: "Impact on GDP is limited because imports are not a huge share of GDP," he said. "So, aggregate consumer losses are roughly (but not fully) offset by wage gains in sectors that are protected. Consumer losses are diffused through the economy but gains are concentrated in few sectors that receive the protection." In other words, while the positive effects of tariffs are limited to the few sectors they aim to protect, the negative effects spread out to the economy at large, particularly on consumers.
Based on this experience, economists worked on the assumption that new tariffs, like the ones proposed by Trump, would also filter down to consumers. Their models showed varying levels of increased expenses for households, but all agreed that they would raise the cost of living and hinder economic growth.
For example, a Bloomberg Economics report predicted the Federal Reserve's preferred measure for inflation, the Personal Consumption Expenditure Price Index, would surge to 3.7% by the end of 2025 should Trump impose these new tariffs. For comparison, the Fed's inflation target is 2%. If that measure goes above the target, the central bank could be forced into raising interest rates to curb inflation. Consumer prices, meanwhile, would be 2.5% higher and this measure would shave 0.5% off of GDP growth, according to Bloomberg's model.
Kimberly Clausing, an economist at UCLA, and Mary Lovely, an economist at the nonpartisan think tank Peterson Institute for International Economics, wrote in a May 2024 policy brief that Trump's new tariffs would result in a $1,700 loss in after-tax income each year for middle-class households in the United States. If, as Trump has suggested, across-the-board tariffs went to 20% instead of 10% they would cost middle-class households about $2,600 more each year, Clausing and Lovely said in August 2024.
Based on the across-the-board 20% increase, the Center for American Progress calculated that middle-income families in the U.S. would pay $3,900 more each year. Based on the 10% across-the-board increase, the Tax Policy Center estimated an added cost on U.S. households, on average, of $1,820 a year. Lastly, the center-right think tank American Action Forum calculated that a combination of the 10% across-the-board tariffs and 60% tariff on Chinese goods would come to a $3,650 to $4,300 increase in the yearly expenses of U.S. households. This is the number Harris cited in the debate.
Additionally, an increase in the price of imported goods can lead opportunistic producers of domestic goods to match that increase. Fed economist Aaron Flaaen and others found that the tariffs on washing machines raised their cost by about $86, while the cost of dryers increased by $92, despite not being subject to tariffs. Goldman Sachs analysts concurred. In a note published in April 2024, they said that the proposed tariffs would hurt GDP growth and cause inflation as the cost of new tariffs filter down to consumers and domestic producers also raise their prices.
Many of these experts say tariffs have amounted to and will continue to amount to a regressive sales tax, with the lowest-earning households paying a larger share of their incomes to cover their cost. This would also contribute to inflation -- albeit slightly, according to the Peterson Institute.
This runs contrary to the claims of Robert Lighthizer, who served as Trump's United States trade representative. Lighthizer, who is vying for the post of Treasury secretary should Trump be reelected, has been one of the top advocates for tariffs in a second Trump administration. "Mainstream economists disagree with the notion that tariffs would increase household income, but in the pre-COVID Trump years we did raise tariffs and median family income rose, too," Lighthizer wrote in March 2024 in The Economist. Lighthizer does not break down that increase, however.
The effects of new tariffs on domestic jobs can be uneven, according to economists' findings. As stated above, one of the main goals of tariffs is to protect industries from foreign competition, thereby protecting jobs. But while it's true that cheap imports have destroyed jobs over time, this assumption forgets that cheaper materials for domestic producers can allow them to free capital for things like research and hiring.
In their May 2024 paper, Clausing and Lovely pointed out that Trump's tariffs on steel have not increased hiring in the U.S. steel industry. Instead, they made steel more expensive to U.S. producers, shrinking available capital for hiring, and making steel-made products from other countries more attractive to consumers -- thereby increasing the foreign competition tariffs are supposed to stave off.
Beyond this, retaliation can play a major role in job destruction. If the U.S. increases tariffs on China and Beijing responds in kind on other products, the domestic sectors that produce these exports destined for China can get hurt. This is what happened in 2018 and 2019, when China imposed retaliatory tariffs on U.S. agricultural exports. The trade war caused the U.S. government to step in by expanding agricultural subsidies to support the sector. As a result, economists Benn Steil and Benjamin Della Rocca wrote in 2020, "92% of Trump's China tariff proceeds has gone to bail out angry farmers."
An analysis published in January 2024 by a group of economists from MIT, Harvard, the World Bank and the University of Zurich showed that despite Trump's claim that the tariffs he imposed would bring jobs back to the U.S., they did not:
The net effect of import tariffs, retaliatory tariffs, and farm subsidies on employment in locations exposed to the trade war was at best a wash, and it may have been mildly negative. Although retaliatory tariffs were more effective in reducing employment than import tariffs were in boosting employment, retaliatory tariffs were less effective in reducing Republican electoral support than import tariffs were in boosting Republican electoral support.
Meanwhile the Tax Foundation estimated that new tariffs would reduce employment by 142,000 full-time equivalent jobs."
On jobs, too, Lighthizer has made opposing claims. "Donald Trump has proposed a 10% tariff on all imported goods to offset economic distortions created by foreign governments, to reduce America's trade deficit and to speed up its reindustrialisation," he wrote in The Economist. "Experience suggests that this will succeed and that high-paying industrial jobs will be created."
To back his argument, he cited a study from the Coalition for a Prosperous America, a lobbying group dedicated to trade protectionism, which has calculated that an additional 10% tariff across the board would create 3.3 million jobs. The group also predicted a "strong outlook" for the U.K. after Brexit, despite economists agreeing post-Brexit Britain has "significantly underperformed" other advanced economies. The main culprits were the new trade barriers and diminished foreign investment.
Another area of the economy impacted by tariffs may be financial markets. For example, University of Michigan economist James Hines Jr. argued in a PBS report that the dollar might strengthen with new tariffs. That's because if the U.S. imports fewer goods, it has less of a need to acquire foreign currencies. This, in turn, would strengthen the dollar, which would make U.S. goods more expensive to trading partners. This would contribute to lowering the competitiveness of U.S. goods on the international market, reducing exports and profits.
Eventually, however, the U.S. dollar might begin to weaken against other currencies, according to analysts at UBS Group AG. "US tariffs are likely to be USD negative as time progresses," they wrote in September 2024:
With a high probability, the rest of the world would probably retaliate with a 10% tariff against US imports, while not increasing tariffs on their other trading partners. With the US being confronted by 10% tariffs from all its trading partners while these trading partners only feel the pain on their US imports, keeping the remaining imports unaffected, the US economy could face greater disadvantages. If this results in a larger US trade deficit, we expect the USD to come under pressure.
U.S. debt markets, too, would feel the impact of new tariffs. Bond yields decreased starting in 2018 as inflation accelerated and the Fed increased interest rates. But UBS analysts expect increased tariffs would bode well for bonds. Indeed, bonds are an asset investors flock to in times of uncertainty and lagging growth. "In our view, the reduction in economic activity due to universal tariffs is bullish for US Treasuries," the UBS team wrote. "Under the universal tariff scenario, slower economic growth will likely outweigh the impact of a short-term rise in inflation expectations on interest rates."
U.S. stock markets might well take a hit, as they did during the first round of tariffs in 2018-19. Lazard strategist Ron Temple said to Bloomberg News in September 2024 that they could trigger a "stagflationary environment." He warned that investors may have to pick their stocks based on new considerations. "What you really want to start thinking about is how do you identify vulnerabilities in different companies' supply chains," he said. "How dependent are they on imports from China?"
Citing research showing U.S. stocks had fallen on days when tariffs were announced in the 2018-19 period, and that equities from the targeted sector suffered more than those that weren't, UBS predicted "roughly a mid-single-digit decline in the expected level of S&P 500 profits." It added that while it is difficult to accurately predict what stocks will do, "tariffs may also lead to an increase in policy uncertainty, which would weigh on US stocks. Consequently, implementation of universal tariffs could lead to a ~10% pullback in US equities." Barclays Plc analysts agreed with this analysis. In a note written in September 2024, they estimated that tariffs would bring earnings of S&P 500 companies down 3.2%.