There are many moving parts to this question including Congress, retaliations, and consumer impacts.

Data from the Tax Foundation, chart by Mish.

Doubling tariffs on China won’t double revenue from tariffs. Instead, some imports from China would shift elsewhere.

Also collection is never 100 percent. And since goods are a tax on consumers, consumers will buy less if prices go up.

Finally, there is a negative impact on GDP due to trade frictions and retaliations.

The Tax Foundation discusses the above in Revenue Estimates of Trump’s Universal Baseline Tariffs

President-elect Donald Trump has proposed to implement a universal baseline tariff on imports when he takes office. We estimate a 10 percent universal tariff would raise $2 trillion and a 20 percent universal tariff would raise $3.3 trillion from 2025 through 2034, before factoring in how the taxes would shrink the US economy. In 2025, a 10 percent universal tariff would increase taxes on US households by $1,253 on average and a 20 percent universal tariff would increase taxes on US households by $2,045 on average.

To estimate how much revenue a universal tariff raises, we start with a baseline projection of goods imports over the next decade. Imposing a tax on imports would reduce purchases of foreign-produced goods, resulting in fewer imports. We apply an import elasticity of -1 to project how imports would fall in response to a 10 percent tariff and a 20 percent tariff. How much imports shrink thus varies with the applied tariff rate, implying that doubling the rate does not double the revenue.

From there, we multiply the import tax base by the inclusive tariff rate (the rate divided by one plus the rate) to estimate initial customs duty revenue raised under perfect compliance before making an adjustment to reflect an 85 percent compliance rate, which represents the average tax gap. After compliance adjustments, but before accounting for income and payroll tax offsets, we estimate a 10 percent universal tariff would generate $2.7 trillion of customs duty revenues and a 20 percent universal tariff would generate $4.5 trillion of customs duty revenues.

The total revenue raised will be less than the customs duty revenue generated by the tariff because tariffs reduce incomes, and thus reduce income and payroll tax collections. Accounting for income and payroll tax offsets, our conventional revenue estimate finds that the 10 percent tariff would generate $2 trillion of increased revenue, while the 20 percent tariff would generate $3.3 trillion over a decade.

Because both taxes would shrink the size of the US economy, the dynamic scores are smaller: $1.7 trillion for the 10 percent tariff and $2.8 trillion for the 20 percent tariff. If foreign countries retaliate, even partially, to the US-imposed tariffs, revenue will fall further as the economy shrinks even more. For example, we estimate a 10 percent tariff on all US exports would shrink tax revenues on a dynamic basis by more than $190 billion over 10 years.

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Tax Foundation Revenue Estimates of 20 Percent Tariffs

If this sounds complicated, it’s because it is complicated. Moreover, the Tax Foundation did not go into the political realities of tariffs.

Authority to Change Tariff Rates

Trump is bluffing on at least some of his ideas because he lacks authority to do what he says and it would backfire if he went ahead anyway.

Please consider How CBO Projects Tariff Revenues

In 2023, the United States received $3.8 trillion of goods and services. The average U.S. tariff rate on goods is 3.4 percent, but rates vary by product.

Many products can be imported duty-free, whereas others are subject to rates of more than 50 percent. The Harmonized Tariff Schedule (HTS), maintained by the U.S. International Trade Commission, specifies tariff rates for every product.

Who Has the Authority to Change Tariff Rates?

The Congress has the constitutional authority to regulate foreign commerce by
levying tariffs through legislation. Lawmakers have delegated authority to the executive branch by authorizing the Administration to engage in trade negotiations and implement trade restrictions in specified circumstances.

The United States joined the World Trade Organization (WTO) in 1995 and has entered into several international trade agreements. Generally, WTO members agree to impose nondiscriminatory tariffs and follow the most-favored-nation (MFN) rule. Under that rule, the tariff rate that the United States offers to one member must apply to all members. After joining the WTO, the United States reduced certain tariff rates as a result.

The MFN rule has exceptions. Countries can set tariff rates that apply only to specific WTO members to implement free trade agreements, offer favorable treatment for developing countries, or respond to certain trade practices. Both the Congress and the Administration have recently changed tariff rates in accordance with those exceptions.

Executive Actions and Tariff Rates

Assessing Trump’s Proposed 25% tariff on Mexico and Canada

Brookings does a great job Assessing Trump’s Proposed 25% tariff on Mexico and Canada

First, it is important to be clear about the costs of a 25% across-the-board tariff on imports from Mexico and Canada. Various studies have confirmed that the 25% tariff on imports from China initiated by the Trump administration and then expanded by the Biden administration created costs and reduced investment. 

Second, the proposed 25% tariffs on Mexico and Canada will be much more extensive than current tariffs on imports from China, and the impact will be more significant. Imports from Mexico and Canada are the United States’ first and third largest sources of imports respectively, worth over $900 billion in 2023, and over 17 million jobs rely on trade across North America, including over 4.5 million U.S. jobs. In addition, approximately 50% of U.S. trade with Canada and Mexico is driven by supply chains in sectors such as automobiles, medical equipment, energy, and agricultural products. This means that products cross borders multiple times as they are manufactured. The 25% tariff applied each time a product moves along supply chains will add up quickly and raise prices, rendering many of these supply chains economically unviable. This analysis does not take into account additional costs should Mexico or Canada retaliate.

The proposed tariffs are also likely inconsistent with the USMCA—the trade agreement between the U.S., Mexico, and Canada that the Trump administration successfully negotiated. USMCA is up for review in 2026, and it is possible that these tariffs are part of a broader strategy to extract concessions from Mexico and Canada in the lead-up to the review. Yet, Trump’s willingness to ignore U.S. commitments under USMCA will hamper his administration’s ability to make progress on other key challenges. Threatening 25% tariffs on Mexico and Canada has sent a signal globally that governments cannot rely on an agreement with Trump—even one that he negotiated.

In response, governments will focus on one-off deals to address specific U.S. concerns, while avoiding getting drawn into agreements that are based on longer-term cooperation. This will make it more difficult to address U.S. economic and security concerns with China, which will require building more political, challenging, complex, and longer-term cooperation with other countries in areas such as export controls, investment screening, and industrial subsidies.

Also consider the PIIE report No trade tax is free: Trump’s promised tariffs will hit large flows of electronics, machinery, autos, and chemicals

But president Trump has no legal authority to break the USMCA treaty with Canada and Mexico. That would take an act of Congress.

My baseline assumption is the Senate would not go along. Trump could conceivably act alone, but I highly doubt it. He is much more likely to wait until 2026.

For the above reasons, we need a more county-specific analysis.

US Goods Imports – Select Countries

Trade data from the Commerce Department, chart by Mish.

US Imports – Goods Only – Excluding China, Mexico, Canada

US Goods Imports Breakdown

• Excluding China, Mexico, Canada: 1,879
• China: 430
• Mexico: 505
• Canada: 412
• Total: 3,226

I estimate of $3.226 trillion in imports for 2024 based off three quarters of data, then factored up. The prior-year numbers are as published. All are calendar-year totals.

For fiscal year 2025, the Tax Foundation estimates $3.279 trillion in imports. Thus, my numbers and those of the Tax Foundation closely match.

Political Realities

The political reality is Trump will not touch USMCA until 2026 or it will backfire spectacularly.

Looking further ahead, no one can say what the political realities might be in 2026.

Meanwhile, Trump has threatened 50 percent tariffs on China which is also unlikely but possible. However, if Trump did impose 50 percent tariffs on China, most imports from China would stop dead. So that portion of tariff revenue would likewise stop dead.

More realistically, Trump might go for 20 percent on China (up from the current 10) and 10 percent on the rest of the world excluding Mexico and Canada.

US Balance of Trade Select Countries Goods only 2024 Q4 Projection

The above chart shows balance of trade whereas the previous charts show only imports.

The US trade deficit with Vietnam is double that of Canada. The US trade deficit with Taiwan, South Korea, and Japan are all greater than with Canada.

I did not chart Germany, but that trade deficit is about $64 billion, also larger than Canada.

Balance of Trade Leverage

Excluding Mexico and Canada, the above chart shows where Trump has the most leverage.

Those countries are China, Vietnam, Taiwan, South Korea, and Germany.

Five Tariff Things You Need to Know

Please consider Is Trump right when he tweets that tariffs bring in government revenue? Here are 5 things you need to know.

The article is five years old but it’s timeless. Here are a few points.

Much of international trade today consists of parts and components. Tariffs thus harm the competitive position of U.S. companies that provide employment in the United States and rely on those inputs to make other things.

Based on his tweets, Trump thinks foreigners are paying for his tariffs by reducing their prices to stay in the U.S. market.

Yet, the evidence suggests the opposite. Thus far, American companies and consumers are suffering the costs of Trump’s tariffs, in the form of higher prices and reduced purchases.

And who stands to gain? The beneficiaries are a handful of steel, aluminum or other input-making companies that face less competition and can raise their prices — ultimately at the expense of American consumers.

Broad Brush Problems

It would make more sense to go after items of strategic consequences instead of things like clothes where we should be happy to have cheap imports.

Trump is not listening to me, but he cannot ignore political and economic realities.

Existing Tax Foundation Math

• Based on a 10 percent across the board tariff rate, the Tax Foundation estimated the 10-year average tariff collection would be $322 billion per year with 100 percent compliance.
• In practice, at 85 percent compliance collection would be $274 billion per year on average.
• Factoring in offsets and dynamic revenue, the Tax Foundation estimates actual revenue would be $172 billion per year on average.

Revised math

We need to remove Mexico and Canada from the equation.

That’s $917 billion (about 28 percent) of the total $3.226 trillion that is likely going nowhere, at least for a year.

Nor will Trump collect 20 percent on imports from China. Much of that trade would end up in Vietnam at 10 percent, or Mexico or Canada at roughly 0 Percent. The more Trump pressures China, the more that portion of the deficit goes elsewhere at a lower tariff rate.

The previous chart shows the balance of trade with China went from a deficit of $419 billion to $290 billion when Trump added 10 percent tariffs (that Biden kept intact). But the process isn’t linear. An even greater portion of trade would move elsewhere on a 20 percent tariff on China.

Based on the above revised math analysis, Trump might be able to get $225 billion per year on average in raw numbers (at 85 percent compliance) by executive decree. But the true budget impact would be $150 billion at best.

I say at best because there is a potential chance of trade repercussions that could collapse global trade with devastating consequences.

Beyond that, Trump would need help from Congress and such help is unlikely.

How Much Is a Bluff?

Other than USMCA (25 percent tariffs on Mexico and Canada is an obvious Trumpian bluff), it’s difficult to know what’s a bluff and what isn’t. But we do know Trump believes in tariffs and he thinks the US is getting ripped off.

We also know that Trump has proven that trade wars are neither good nor easy to win, but he is doubling down anyway.

Fortunately, political realities will likely contain much of the damage as long as Trump stops short of doing something that causes a total global trade breakdown.

What Could Cause a Global Breakdown?

The more Trump pressures China, the more likely a devastating global breakdown.

Rare earth exports from China explain how and why.

On November 11, I noted China’s Puts Export Curbs on Minerals US Needs for Weapons and Technology

In a warning shot to the Trump administration, China tightens export controls on some dual-use minerals.

On December 3, I noted China Halts Rare Exports Used by US Technology Companies and the Military

This is China’s advance salvo at Trump tariffs. It comes one day after the Biden administration expanded curbs on the sale of advanced American technology to China.

The US gets around those curbs by buying minerals from other countries that China does sell to. However, if pressured enough, China can easily restrict access to these minerals to everyone.

At present China produces 60 percent of the world’s rare earths but processes nearly 90 percent, which means that it is importing rare earths from other countries and processing them. This has given China a near monopoly. Benchmark Minerals Intelligence has flagged that the United States is particularly exposed to processing restrictions for heavy rare earths, given China separates 99.9 percent of them.

For example, China has been supplying 54 percent of the germanium used by the United States, a material used in infrared technology and fiber optics.

Related Posts

February 1, 2024: Help for the Heartland? Trump Tariffs Failed the Mission

Analysis by the NBER, the official arbiter of US recessions, shows Trump’s tariffs achieved nothing, economically speaking. Retaliations cost US jobs. But politically, tariffs are popular.

June 21, 2024: Trump’s Plan to Replace the Income Tax with Tariffs is Economic Nonsense

September 25: Trump Threatens John Deere With 200 Percent Tariffs, Farmers Would Be Hurt

Trump has gone mad with threats. Tariffs on John Deere would cost farmers plenty.

That was another obvious bluff, best laughed at.

Nov 22, 2024: Should Anyone Care Whether Underwear Is Produced in the US or China?

This ridiculous-looking question gets to the heart of tariff discussions.

November 27, 2024: What Industries Will Suffer the Most Under Trump’s Plan to “Make Tariff’s Great Again”?

Trump is upping the rhetoric on Mexico, Canada, and China on top of previous tariff threats. Who will be hardest hit?

On March 2, 2018 I posted Trump Tweets “Trade Wars are Good and Easy to Win”

If trade wars are good and easy to win, Why didn’t Trump win them then?

A complete shutoff of rare earths would be far worse to supply chains than what we experienced with Covid.

A global trade breakdown over rare earth minerals is a serious, yet underrated threat. And the more tariff pressure Trump applies, the more likely it is.

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