What to know about Harris and Trump’s tariff campaign promises

05.11.2024 01:26

It’s election week, and Vice President Kamala Harris and former President Donald Trump are making their last-ditch efforts to recruit voters. At the top of many Americans’ minds, of course, is the economy.

Politicians often campaign on economic promises, whether it’s lowering taxes, fighting inflation or creating jobs. But this election season, Americans have heard a lot about one type of tax: tariffs.

Harris has said she will support targeted tariffs on clean energy components manufactured in China. The goal is to make Chinese goods expensive, encouraging American businesses to buy domestically manufactured goods instead.

Trump has taken a bolder stance, promising blanket tariffs of 10% to 20% on all imports, in addition to drastically raising existing tariffs on Chinese goods. At a campaign event on Monday, he announced a plan to impose tariffs on all goods from Mexico as a tool to pressure the nation into stopping unsanctioned immigration across the U.S.-Mexico border.

“To me, the most beautiful word in the dictionary is tariff,” said Trump, in a speech last month at the Economic Club of Chicago.

Tariffs may seem less relevant to everyday Americans than, say, income taxes or mortgage rates. But economists agree that the tariff policy Trump is promoting will raise prices for American consumers, lower household incomes and antagonize foreign governments into economic retaliation.

Trump and his running mate, Ohio senator JD Vance, have repeatedly said at campaign events that tariffs only harm foreign governments. Economists disagree. In fact, most would say American consumers bear the brunt of tariff costs.

Want to know more about tariffs? We’ve answered some of the big-picture questions below, with help from Ajay Mehrotra, a professor of tax law and economic history at Northwestern University.

What is a tariff?

A tariff is a tax imposed on a good when it crosses a national border. Tariffs on exports are outlawed in the U.S. Constitution, but import tariffs are implemented as a foreign policy tool, revenue source and way to protect domestic industries.

Who has the power to pass/enact a tariff?

According to the Constitution, it’s Congress’s job to regulate trade and impose taxes. However, the president may also enact tariffs in cases of international security or an economic crisis. Since a tariff act passed by Congress worsened the Great Depression, the power to impose tariffs has largely shifted to the president. In fact, by some interpretations, the executive branch can unilaterally impose any trade restrictions.

Have other U.S. presidents used tariffs to raise money?

Tariffs were a primary source of government revenue in the early years of the United States. But as the nation grew, tariffs went from a revenue-raising vehicle to a tool for keeping out foreign competition, said Mehrotra at Northwestern.

“If you’re using it as a tool of international trade, you’re actually not raising money, right? If the point is to protect and keep the goods out, well then no one’s buying it, so no one’s paying the tax,” he said. This also created conditions ripe for the formation of monopolies — as high tariffs made foreign goods prohibitively expensive, domestic industries enjoyed less competition.

Eventually, trust-busting, advocacy for fairer taxation and a need for wartime funds as World War I loomed meant that by the early 20th century, a graduated income tax came to replace tariffs as a primary source of government revenue.

On the campaign trail, Trump has repeatedly said he wants to emulate the tariff policies of President William McKinley, who held office from 1897-1901. McKinley saw tariffs as a way to protect American industries from foreign competition. But, for the most part, economists agree that they’re outdated and inefficient. (They also agree Trump has misinterpreted and misrepresented the legacy of McKinley’s tariff policy.)

What are some goods the U.S. has tariffs on right now?

When Trump was last in office, he imposed tariffs on steel and aluminum. The Biden administration replaced some of these tariffs with a quota system. Solar panels and washing machines have also been subject to tariffs under the Trump and Biden administrations.

Trump also unilaterally enacted tariffs on billions of dollars worth of Chinese-made goods. Biden left some of these policies in place and, in May 2024, announced additional tariffs on Chinese-made goods, with a narrowed focus on industries his administration has worked to build up domestically, like electric vehicles and clean energy.

Who pays for tariffs? How do they affect me?

In the case of tariffs, importers directly pay the tax to the U.S. government. The nation that sent the goods pays nothing, despite what Trump has said. But who actually pays the price of tariffs is more complicated — importers may raise prices to offset a tax, meaning distributors, retailers or consumers actually pay the tariff.

“When Trump says that he’s going to put a 100% tariff on something like Chinese goods, and (he says) it’s the Chinese manufacturers who are going to pay it, we ought to be very dubious of that claim.” Mehrotra said.

The Trump-Biden tariffs have reduced long-run GDP, capital stock and employment, according to a report from the Tax Foundation. It also estimates these tariffs have pushed up tax collections by an average of $200-$300 per household.

That’s just the tariffs we already have. Studies conducted independently by the Center for American Progress, the Tax Foundation, the Institute for Taxation and Economic Policy, the American Action Forum and the Peterson Institute for International Economics found, on average, that Trump’s aggressive 2024 tariff plan will add $3,954 to household costs per year.

Can other countries do anything about tariffs imposed by the U.S.?

Imposing high tariffs on imports can have another consequence: retaliation. When Trump passed tariffs on aluminum and steel, Canada and the EU responded by increasing tariffs on imports from the U.S. The same has happened with goods the U.S. exports to China. In fact, 92% of China tariff proceeds between 2018 and 2020 went to bailing out American farmers, who suffered losses from retaliatory tariffs on U.S. agricultural goods, according to the Council on Foreign Relations.

Economists and foreign policy analysts are concerned if Trump imposes the tariffs he campaigned on, he could start an all-out trade war.

“All of the historical evidence demonstrates that trade wars are not good. They’re not good for international relations,” said Mehrotra. “There’s good evidence that they also cause both domestic and global economic turmoil and uncertainty.”

How do Trump and Harris’ tariff promises compare?

Tariffs aren’t covered in Kamala Harris’s official campaign promises. It is expected that she, like Biden, would support tariffs targeted at clean energy-related goods from China. In campaign events, she has referred to Trump’s tariff plan as “the Trump sales tax.”

On the campaign trail, Trump has promised a blanket 10% or 20% tax on all imports, as well as a 60% or higher tax on Chinese products. The Peterson Institute has estimated such a plan would cost U.S. families between $1,700 and $2,600 per year, and shift the tax burden disproportionately onto lower income consumers.

Most recently, at a campaign event on Monday, Trump promised a 25% – 100% tariff on all goods from Mexico if the country does not stop migrants from crossing the U.S.-Mexico border. This eleventh-hour announcement runs contrary to a free trade agreement Trump signed with Mexico and Canada when he was in office.