Source: Tax Foundation Taxes and Growth Model, March 2018
Launch Tariffs & Trade Resource Center Dual Axis Tracking Solar Panels
The Trump administration imposed several rounds of tariffs, amounting to an $80 billion tax increase on $380 billion worth of imports (based on 2018 values), ranging from thousands of products from China to steel and aluminum and washing machines and solar panels. Other countries responded by imposing retaliatory tariffs of their own. The Biden administration has retained most of the tariffs, save for narrow exemptions or changes to certain steel and aluminum tariffs and washing machine and solar panel tariffs.
Using the Tax Foundation Taxes and Growth Model, we analyze the effects of tariffs on the United States economy. Tariffs damage economic well-being and lead to a net loss in production and jobs and lower levels of income. Tariffs also tend to be regressive, burdening lower-income consumers the most.
According to the Tax Foundation model, the Trump-Biden tariffs will reduce long-run GDP by 0.21 percent, wages by 0.14 percent, and employment by 166,000 full-time equivalent jobs.
Other countries imposed retaliatory tariffs on U.S. exports, which we estimate will further reduce U.S. GDP by 0.04 percent and eliminate 29,000 full-time equivalent jobs.
Economists generally agree free trade increases the level of economic output and income, while conversely, trade barriers reduce economic output and income. Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.
Tariffs could reduce U.S. output through a few channels. One possibility is a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income. Because higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output.
Alternatively, the U.S. dollar may appreciate in response to tariffs, offsetting the potential price increase on U.S. consumers. The more valuable dollar, however, would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower U.S. output and incomes for both workers and owners of capital, reducing incentives for work and investment and leading to a smaller economy.
The Trump administration imposed several rounds of tariffs, which we estimated amounted to a total tax increase of nearly $80 billion during the administration and affected more than $380 billion worth of trade at the time of implementation.
Under the Biden administration, most tariffs have stayed in place except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with TRQs on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension.
Note the total revenue generated will be less than what the tariffs generate, because tariffs reduce real income, which lowers other tax revenues.
In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.
The value of imported steel totaled $29.4 billion and the value of imported aluminum totaled $17.6 billion in 2018. Based on 2018 levels, the steel tariffs would have amounted to $9 billion and the aluminum tariffs to $1.8 billion. Several countries, however, have been excluded from the tariffs.
Tariffs on steel and aluminum and derivative goods currently remain in place for several countries under the Biden administration and account for $2.7 billion of the $74 billion in tariff revenue, based on 2018 import values.
The United States is currently imposing a 25 percent tariff on approximately $250 billion of imports from China and a 7.5 percent tariff on approximately $112 billion worth of imports from China.
Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which concluded in a March 2018 report that found China was conducting unfair trade practices. The same day, President Trump announced tariffs on up to $60 billion of imports. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. Stage one of the tariffs began July 6, 2018, on $34 billion worth of Chinese imports, and stage two, the remaining $16 billion, went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.
The Trump administration imposed stage three of Section 301 tariffs in September 2018—10 percent on $200 billion worth of goods from China. This stage was scheduled to increase to 25 percent beginning in January 2019, but the increase was delayed until it was allowed to go into effect in May 2019. Other tariffs threatened on China under the previous administration include:
Section 301 tariffs on China currently remain in place under the Biden administration and account for $71 billion of the $74 billion in tariff revenues, based on 2018 import values.
In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied to aircrafts and 25 percent on agricultural and other products (our estimate uses the average of the two rates).
Tariffs on the European Union were suspended in summer 2021 for five years under an agreement reached by the Biden administration.
In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.
We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities of four 8-digit Harmonized Tariff Schedule subheadings, given on page 12 of this report. We estimated the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities of six 8-digit Harmonized Tariff Schedule subheadings, given on page 8 of this report.
In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired. In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.
According to the Tax Foundation model, the Trump-Biden tariffs would reduce long-run GDP by 0.21 percent, wages by 0.14 percent, and employment by 166,000 full-time equivalent jobs. Note we do not show the solar panel tariffs because of their small magnitude.
The 0.21 percent reduction in long-run GDP is about 12 percent of the total long-run impact of the Tax Cuts and Jobs Act, which we estimated to raise GDP by 1.7 percent in the long run.
Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs. Reduced trade means fewer options for U.S. consumers and higher prices.
Note: Steel totals exclude imports from Argentina, Australia, Brazil, South Korea, Canada, and Mexico. Aluminum totals exclude imports from Argentina, Australia, Canada, and Mexico. Beginning in 2022, steel totals exclude imports from Japan, the EU, and the UK, and aluminum totals exclude imports from the EU and the UK as respective imports are now subject to tariff-rate quotas (TRQs). Excluding all imports for TRQs overstates the savings from TRQs because tariffs still apply when imports exceed historical levels.
Source: Federal Register notices; Tom Lee and Jacqueline Varas, “The Total Cost of U.S. Tariffs,” American Action Forum, Mar. 24, 2022, https://www.americanactionforum.org/research/the-total-cost-of-tariffs/; data retrieved from USITC DataWeb; author calculations.
Several jurisdictions have proposed and imposed retaliatory tariffs against the United States as laid out in the accompanying tables.
Current retaliation against Section 232 steel and aluminum tariffs target more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion. Tariff revenues for Turkey, India, Russia, and Canada were based on news reports. Mexico, Canada, and the European Union have canceled their Section 232 retaliatory tariffs.
Note: Mexico, Canada, and the European Union canceled their Section 232 retaliatory tariffs.
Source: Congressional Research Service, “Escalating U.S. Tariffs: Affected Trade,” last updated Jan. 29, 2020, https://fas.org/sgp/crs/row/IN10971.pdf ; author calculations; tariff announcements.
China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of U.S. goods, for an estimated tax of nearly $11.6 billion. Note the stage 4b tariffs are not included in the analysis of economic effects due to their cancellation under Phase 1 of the U.S.-China trade deal. The deal also resulted in a reduction of tariffs under Stage 3 and 4a.
Note: Tariff revenues were calculated by averaging the tariff rates and multiplying by the affected amount of