Key Takeaways

  • According to estimates by the Tax Foundation, the 25% tariffs on Canada and Mexico and 10% tariffs on China announced this week by U.S. President Donald Trump will lead to the loss of 344,000 jobs and reduce long-term economic output by 0.4%. The estimate does not account for any retaliatory measures from trading partners.
  • Meanwhile, these import taxes—which Trump said could take effect as early as February 1—will generate $1.2 trillion in revenue for the federal government between this year and 2034, the Tax Foundation noted in its report.
  • "Historical evidence shows that tariffs raise prices and reduce the quantity of goods and services available to U.S. businesses and consumers, leading to lower incomes, reduced employment, and lower economic output," the Tax Foundation said.

Deeper Dive

The Tax Foundation's estimates broadly align with projections from the Committee for a Responsible Federal Budget (CRFB). The CRFB said Wednesday that import taxes effective February 1 would reduce U.S. output by 0.3% and raise $140 billion in revenue this fiscal year, accumulating to $1.5 trillion by fiscal year 2035.

However, the CRFB also noted that "significant uncertainty remains about the actual impact of the import taxes." Its calculations assume the tariffs apply to imports from these three countries that currently face the lowest tariffs, rather than all imports from these countries.

During his presidential campaign, Trump said broad tariffs would create jobs, stimulate investment, and help reduce federal debt. On Thursday, he sought to use tariff threats to encourage foreign companies to invest in the United States.

"My message to every business in the world is very simple: Come make your product in America, and we will give you among the lowest taxes of any nation on Earth," Trump said Thursday in a televised address at the World Economic Forum in Davos, Switzerland.

"But if you don't make your product in America—which is your prerogative—then very simply, you will have to pay a tariff, differing amounts, but a tariff which will direct hundreds of billions and even trillions of dollars into our Treasury to strengthen our economy and pay down our debt," he said.

On Thursday, in an interview with Fox News, Trump appeared to soften his threat of launching a trade war with China.

"We have a very big advantage over China, and that is tariffs," he said. "They don't want tariffs, and I don't want to use them, but it's a tremendous advantage over China."

Trump's speech at the World Economic Forum in Davos coincided with the forum releasing a report warning that the total cost of tariffs, export restrictions, and other forms of global economic "fragmentation" could ultimately rise to about $5.7 trillion, equivalent to 5% of current global GDP.

"A more fragmented global order will push up costs in most cases," the forum said. "In industries more affected by geoeconomic fragmentation, companies have already shifted from 'just-in-time' production models to more costly 'just-in-case' models to diversify portfolios and supply chains."

"Such measures may enhance resilience, but they also add costs," the forum added. "Investment restrictions, export controls, and tariffs could lead to inefficient restructuring of portfolios and supply chains, thereby pushing up global inflation."