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President Trump has implemented a range of tariffs on imports from around the globe—at the highest rates since the 1930s—targeting our largest trading partners and our most important strategic allies.
While the tariffs are aimed at achieving several policy goals, Trump has stressed two in particular: using tariffs to raise revenue for the federal government and encouraging (or forcing) the “reshoring” of production to the United States.
Tariffs are taxes on imports—manufactured products like textiles and consumer electronics, agricultural products and parts used in the production of American goods. They are collected at U.S. ports of entry. From the founding of the republic until the early 20th century, tariffs and other duties constituted a primary source of revenue for the federal government. That changed with the creation of the federal income tax and the 16th Amendment in 1913.
Taxing imports does raise revenue but not enough for a modern government to function. Tariff revenue for 2026 is projected to total $300 billion to $400 billion, which accounts for only about 1% of U.S. gross domestic product. It is no mere coincidence that the United States developed as a global economic and military powerhouse after it stopped relying on this 19th century policy tool as its primary method of revenue extraction.
Nevertheless, Trump nostalgically references the 19th century American economy and has suggested that tariffs could ultimately replace income taxes. In April, he said, “We’re going to be cutting taxes, and it’s possible we’ll do a complete tax cut, because I think the tariffs will be enough to cut all of the income tax.”
Contrary to what the president says, tariffs are not paid by the exporting countries, but by the importers: American companies, from the largest multinationals to the smallest mom-and-pop businesses. The revenue from those import taxes goes to the U.S. Treasury. But the costs of those taxes are placed on the importer, who may choose to pass them on to the consumer in the form of higher prices. Put differently: Every dollar of revenue added to U.S. coffers via tariffs is a dollar spent by an American employer or an American consumer.
Trump believes tariffs will rebuild manufacturing and get companies to replace imports with American-made equivalents. But not all products or parts we import can be made in the U.S. efficiently or cheaply. Take shoes, for example. Approximately 99% of shoes sold in the United States are imported, mostly from low-wage-labor countries. As free market economist David Ricardo noted over 200 years ago, countries have their own “comparative advantages,” and no country should try to make everything itself.
Ironically, Trump’s reshoring goal might be undermined by his mass deportation policies.
Reshoring will require more entry-level workers. America’s current labor shortage will only be exacerbated by the administration’s mass detentions and deportations of non-violent, non-criminal immigrants in the labor force (undocumented but also documented). Nor will ICE’s recent arrest of over 300 South Korean workers in Georgia, helping to set up a Hyundai battery plant, encourage more foreign direct investment in the United States. Video of the workers in shackles has gone viral in South Korea.
Various administrations, Democratic as well as Republican, have used tariffs as a tactic to achieve specific economic and foreign policy goals. President Obama did this with Chinese tires, for example.
A fundamental problem with Trump’s approach is that he views tariffs as a strategy, not a tactic. He loves tariffs, even as he doesn’t seem to understand how they operate in a 21st century global economy, or how they could harm America’s businesses and consumers.•
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Atlas, a political scientist, is a senior lecturer at the Paul H. O’Neill School of Public and Environmental Affairs at Indiana University-Indianapolis. His opinions do not necessarily reflect those of Indiana University. Send comments to [email protected].
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