The Historic Tariff Increase in One Chart

Jul 13, 2018 - 2:45pm

Senior Economist

The U.S. economy has been performing particularly well since President Trump took office. The administration’s policies, most notably regulatory reform and tax reform, deserve considerable credit for this improvement. However, the recent actions on tariffs – and the responses by our trading partners – threaten these gains.

Major exporters stand to lose from coast to coast. A recent U.S. Chamber analysis found that in my home state of California about $5.6 billion in exports are at risk due to the already implemented retaliatory tariffs, including more than $1.4 billion in exports of electric vehicles, one of America’s nascent growth industries. In Washington State, more than $6.2 billion of exports are threatened by the emerging trade war; Louisiana, which is a gateway for a huge quantity of American agricultural exports, stands to lose about $5.9 billion.

To put the impact of these tariffs in a fiscal context, it is worth understanding how these actions compare historically. Tariffs were an important revenue source for thousands of years, including through most of America’s early history. Commerce was channeled through ports and border crossings, making for a convenient point for administration and collection. But with modernity came a vastly expanded ability to collect taxes, and so tariffs’ prominence dissipated along with their deleterious distortions to trade and economic activity.

Since World War II, customs duties collected as a share of GDP have remained within a narrow band. The U.S. raised $32 billion in duties in 2016. To put this in context, our country raised more than $1.5 trillion from personal income taxes that same year. Recent actions would spike duties collected by an additional $145 billion, according to the Tax Foundation. That’s a massive increase, which would be a radical shift from prior policy, as seen in the chart below.

The U.S. Chamber has repeatedly argued that the current approach to trade may result in less domestic production and a worsening of the trade deficit. Furthermore, these actions undermine other policy accomplishments. One estimate from the Tax Foundation is that the full impact of these trade actions could offset roughly a third of the growth from the Tax Cuts and Jobs Act. For some firms, the benefits of tax reform would be gobbled up several times over.

Whether our goal is to secure greater intellectual property rights from trading partners like China, or simply to export more goods and services, a trade war with our trading partners represents a sharp shift from prior policy and one unlikely to achieve the administration’s goals.

About the Author

About the Author

Brian Higginbotham
Senior Economist

Brian Higginbotham is a senior economist at the U.S. Chamber of Commerce.