Anybody stinging from the sticker shock of inflation during Joe Biden’s presidency should be alarmed at what might be coming if Donald Trump becomes the next president: tariffs on imports that could be even more painful.
Trump wants to impose new tariffs of 20% on most imports, with a 60% tariff on products from China. That’s on top of more modest tariffs Trump already imposed during his presidency. Americans buy $3.8 billion worth of imports every year, more than any other nation. That's nearly as much as Americans spend on healthcare, and you’ll never hear a presidential candidate promising to raise healthcare costs by adding new taxes.
Trump says tariffs are not taxes. He’s wrong, and it’s not a matter of interpretation. Tariffs are a customs duty paid by American importers. The Treasury Department reports revenue from customs duties the same as it reports revenue from income and corporate taxes. The government’s tariff revenue doubled, from $38 billion in 2017 to $77 billion in 2019, after Trump’s first set of tariffs went into effect.
Right before COVID hit in 2020, the Congressional Budget Office (CBO) estimated the Trump tariffs would raise prices by 0.5%, reduce GDP by 0.5%, and cost the average household $1,277 via higher prices and slower economic growth. The COVID pandemic, combined with unprecedented amounts of government stimulus, distorted the economy and made it hard to validate such forecasts.
But Trump’s tariffs most likely contributed to the inflation surge under Biden, with the inflation rate peaking at 9% in 2022. Biden repealed the Trump tariffs on allied nations, but he kept the China tariffs in place. That adds a tax of 7.5% to 25% on about $280 billion worth of imports each year, according to the American Action Forum. Federal revenue from tariffs is still double the pre-COVID level.
Trump’s new round of tariffs would cost the typical household an additional $2,600 per year in higher costs and slower growth, according to the Peterson Institute for International Economics. That would probably be a bigger hit to American wallets than inflation has exacted since Biden took office.
The average household spent $66,928 in 2021, Biden’s first year in office. Since January 2021, overall price levels have risen 19.7%, while incomes have risen by 17.6%. So inflation has exceeded incomes by 2.1 percentage points during that time. That erosion of purchasing power is the “cost” of inflation.
If average expenditures rose by 19.7% since 2021, while incomes only rose 17.6%, the cost of inflation was a loss in purchasing power equivalent to $1,405. That covers a three-year period, so divide by three and you get $468 per year in added costs. That might seem suspiciously low to large families with a lot of mouths to feed and rising rent. But it also covers smaller households able to substitute away from costlier goods, plus millions of homeowners whose housing costs fell after they refinanced their mortgages at record low interest rates in 2020 and 2021.
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At any rate, $468 per year, or even double or triple that amount, is far less than the $2,600 per year Trump’s tariffs would cost.
Other estimates of the cost of inflation under Biden are dramatically higher — and extremely fishy. Trump claims that inflation has cost the typical family $28,000 since 2021. If true, that would amount to nearly five times what the typical family spends on groceries every year. Inflation has been painful, but this isn’t Zimbabwe.
Trump’s figure seems to come from Congressional Republicans using an unorthodox methodology that compares actual inflation with a hypothetical scenario in which there is zero inflation, which almost never happens. If average household expenditures had risen by $28,000 since 2021, that would imply inflation since then of 42%, more than double the actual rate. Fact-checking sites have debunked the Trump claim.
Whatever the toll inflation has taken, why make it worse by imposing new taxes just as prices are getting back to normal levels? Trump argues that tariffs would benefit the economy by boosting domestic manufacturing, even though research on his first round of tariffs shows that they killed jobs, on net, while raising business costs and harming profits.
Trump supporters may back his tariffs for other reasons. One is that they never noticed any harm from Trump’s first set of tariffs, which were carefully levied on intermediate goods that end up in other products, rather than finished goods that go straight to consumers. Prices rose in the supply chain, but producers couldn’t pass all of it on to shoppers.
There was also a big shift in imports away from China to substitute countries such as Vietnam and India, which were not subject to new tariffs, so many imports simply evaded the China tariffs. Then came the COVID-era stimulus payments, which put free money in people’s pockets and led to a surge in demand for goods. As inflation jumped far above normal levels, people kept buying stuff anyway, because they had the money. If the Trump tariffs were helping push prices up, government stimulus money was an offset.
There won't be any more stimulus to numb the pain of additional Trump tariffs. And his new plan for across-the-board tariffs won’t leave the escape hatches that his first set of tariffs did. Voters who think they didn't mind the first round of Trump tariffs might have to reevaluate when the second round comes along.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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