The United States government has the potential to collect US$2trn or more in tariff revenue for its coffers in the next decade from President Donald Trump’s new import levies, according to economic and budget researchers.
Since his second presidential term began in January, Trump has ordered a series of new import tariffs on a global, per-country and per-item basis. Among the president’s stated goals is to raise enough money to offset, or even eliminate, federal income taxes.
The Treasury Department disclosed that US$22.2bn was raised in May, a new monthly record high. However, the White House is promising much higher revenue from tariffs. Trump has said they can raise US$600m to US$1trn for the Treasury “a year from now.”
That figure is “completely unrealistic,” Alex Durante, Senior Economist at the nonpartisan Tax Foundation in Washington, told Treasury Today in an interview. Instead, the Tax Foundation estimates the federal government may collect approximately US$2trn over a ten-year span, “which is well below what the administration has claimed,” Durante said.
Another calculation, by the Budget Lab at Yale (YBL), estimates all announced US tariffs together would raise US$2.7trn over ten years. Goldman Sachs issued a forecast that is a bit higher, predicting as much as US$300bn per year.
While the federal government counts its windfall from the tariffs, many US companies are lamenting the damage to their financial results, balance sheets, supply chains and outlook. Import-dependent corporations including VF Corp, Polaris and Wayfair are pursuing cost-reduction measures including layoffs and more favourable terms with suppliers.
At Hewitt Packard Enterprise (HPE), Executive Vice President and Chief Financial Officer Marie E. Myers said her company initially had presumed a reduction of 7 cents per share in earnings due to the Trump tariffs. The company was already in the midst of a 5% headcount downsizing programme and ultimately has been able to identify additional operational efficiencies to absorb as much as 29% of that negative tariff impact.
“Given the evolving and uncertain state of global trade policy, I want to provide a brief update to our tariff outlook,” Myers said during HPE’s fiscal second-quarter earnings conference call in June. “Our initial full-year guidance of a US$0.07 impact to earnings reflected our best estimate based on tariffs in place on March 4th, net of our mitigation efforts. Looking out to the second half of the year, we are reducing our tariff impact by US$0.01 to US$0.02 as the 90-day pause currently in effect for most tariffs expires.”
Myers added: “We continue to navigate a complex macroeconomic and geopolitical landscape and remain prepared to take additional action in the back half of the year to deliver against our fiscal ’25 outlook.”
The Tax Foundation calculates that the totality of Trump’s new levies, if unamended, would increase the nation’s applied tariff rate to 16.1%. Considering the likely range of responses by importers and consumers, the effective tariff rate would end up at 12.4%, still the highest since 1941.
The windfall will be even smaller if federal courts disallow Trump’s so-called “reciprocal” tariffs and separate levies instituted against China, Mexico and Canada under an anti-fentanyl rationale, Durante added.
The foundation, Yale’s Budget Lab and other analysts note that higher tariffs tend to shrink consumption and depress economic activity, leading to a likely reduction in gross domestic product.
“Given the negative output effects of the tariffs, there would be additional dynamic reductions in tax revenue as a result,” the Yale researchers wrote. “Based on Congressional Budget Office rules-of-thumb, TBL estimates that these effects would total -US$394bn over the decade.”
Many of Trump’s tariffs are still subject to negotiations, both in bilateral discussions and on a regional basis, eg, the European Union and signatories to the United States-Mexico-Canada Agreement. Temporary or partial agreements have been reached with the United Kingdom and China. Other trading partners are asked to make concessions to avoid the announced “reciprocal” tariffs, which include a 10% global rate plus country-specific levies.
“The best guess is that the 10% reciprocal tariff is going to stay in place,” Durante predicted.
No matter the outcome of those negotiations, the US will raise much more than the US$88bn in import duties collected by US Customs and Border Protection in 2024.
Durante suspects that the highly inflated revenue forecasts from Trump may have been loosely based on the maximum-possible optimistic assumptions gleaned from the earliest tariff-payment pace. That was before importers had a chance to initiate supply-chain adjustments – and before negotiations with trading partners.
“I don’t think that is a very good indicator of what they will collect going forward, and I think the administration already realises that,” Durante said.
Indeed, during an appearance at the NATO meeting in the Netherlands on June 25th, Trump was no longer talking “trillions” with a T, or even billions.
The independent analyses do not envision any possibility that tariffs, even under the highest plausible outcome, can replace the income tax. The US collects approximately US$2trn in income taxes annually.
