Experts often lament the absence of grand ideas in American presidential campaigns. Well, this time, that complaint seems laughably misplaced. The pièce de résistance of this campaign is none other than Donald Trump’s audacious proposal to slap tariffs on imported goods at levels the U.S. hasn’t seen since, well, the early 19th century. Bold? Certainly. Wise? Perhaps not so much.

As with any economic policy, tariffs come with trade-offs. A new analysis from Yale’s Budget Lab, a supposedly neutral research centre, uses financial modelling to spell out the less-than-glamorous details. In short, while Trump’s tariffs might fill the Treasury’s coffers, the cost to the economy—both figuratively and literally—could be eye-watering.

At its core, a tariff is a tax on anything not made in America—from trainers to car parts. And while this election has reignited the debate over whether Americans or foreigners bear the brunt of tariffs, economists have long settled this matter: domestic businesses and consumers foot the bill, not foreign manufacturers. In most cases, companies simply pass on the extra costs to their customers, leading to—you guessed it—higher prices.

Currently, U.S. tariffs vary by product and country. Some imports are tax-free, while others face hefty duties, like the staggering 100% levied on certain Chinese goods. The “effective” tariff rate in 2023 was 2.5%. That’s marginally higher than in recent years but still far below the dizzying highs of the past. In the early 1800s, when tariffs were the government’s main cash cow, Americans were forking out more than 40%—sometimes over 50%—on most imports. Good times, eh?
Back then, policymakers and some nostalgic economists argued that high tariffs were necessary to protect the fledgling U.S. industry. Yet, modern research has debunked much of this logic. Still, one can’t rule out non-economic reasons, such as national security, for dusting off these ancient policies.

In his signature style, Trump has laid out his vision for resurrecting tariffs to these historical highs. He’s floated across-the-board tariffs of 10% to 20% on all imports from trade partners while eyeing a staggering 60% on Chinese goods. He’s even mused about a 200% tariff on Mexican imports as if that weren’t enough. The Budget Lab took these musings and crunched the numbers in 12 scenarios, both with and without retaliatory action from the targeted countries.

Let’s be clear: tariffs are taxes. Trump’s proposed hikes would undoubtedly bring in revenue, potentially helping to reduce the federal deficit, which ballooned to $1.8 trillion in the fiscal year ending in September. If no other country retaliated (which, of course, they would), the U.S. could collect $2.6 trillion over the next decade. If non-Chinese tariffs are pushed to 20%, that number will jump to $4.4 trillion.
But here’s where things unravel. First, retaliation from other nations is a near-certainty. Remember China’s swift response to Trump’s Section 301 tariffs in 2018? At the Budget Lab, retaliation would shrink U.S. tariff revenues by 12% to 26%, depending on the proposal. For example, the 10% tariff combined with a 60% tariff on China would only net $2.2 trillion in a retaliatory scenario, while the 20%/60% combo would fetch $3.4 trillion.

Second, these optimistic revenue projections assume the economy remains intact. However, history suggests otherwise. Tariffs would likely shrink the economy as higher input costs, reduced investment, and lower consumer spending offset any benefits from reshoring. Real GDP could drop by 0.5% to 1.4% in the medium term, translating to a loss of $120 billion to $325 billion. And a shrinking economy means less tax revenue, naturally. The Congressional Budget Office’s estimates indicate that dynamic revenues would fall by an additional $400 billion to $1 trillion, further dampening any fiscal bonanza.

Third, prices would rise, and household incomes would shrink due to these tariffs. While one-tenth of consumer spending is on imports, a quarter of goods purchased are sourced from abroad, meaning consumers would bear the brunt. Depending on the proposal, prices could increase by 1.2% to 5.1%, effectively fast-forwarding inflation from seven months to two and a half years. These price hikes could slash purchasing power by $1,900 to $7,600 annually for the average household. And, as usual, low-income families would suffer the most.
When the dust finally settles, the U.S. would have an effective tariff rate between 9% and 29%—the highest since at least 1946 and possibly 1899.

In conclusion, Trump’s tariff proposal could usher in the most significant shift in U.S. tax and trade policy in generations, potentially generating trillions of dollars. But, as the Budget Lab findings highlight, the economy’s price could be steep—staggeringly so. For those experts clamouring for a bold new policy, they’ve certainly got one now, though they might soon wish they hadn’t.