Tariffs will likely raise much less money than White House projects, economists say

President Donald Trump says that tariffs will make the US “rich.” But those riches will likely be far less than the White House expects, economists said.

The ultimate sum could have big ramifications for the US economy, the nation’s debt and legislative negotiations over a tax-cut package, economists said.

White House trade adviser Peter Navarro on Sunday estimated tariffs would raise about $US600 billion ($950.3b) a year and $US6 trillion ($9.5t) over a decade. Auto tariffs would add another $US100b ($158.4b) a year, he said on “Fox News Sunday.”

Navarro made the projection as the US plans to announce more tariffs against US trading partners on Wednesday.

Economists expect the Trump administration’s tariff policy would generate a much lower amount of revenue than Navarro claims. Some project the total revenue would be less than half.

Roughly $US600b to $US700b ($1.1t) a year “is not even in the realm of possibility,” said Mark Zandi, chief economist at Moody’s. “If you get to $US100b to $US200b ($316.7b), you’ll be pretty lucky.”

The White House declined to respond to a request for comment from CNBC about tariff revenue.

The ‘mental math’ behind tariff revenue

There are big question marks over the scope of the tariffs, including details like amount, duration, and products and countries affected — all of which have a significant bearing on the revenue total.

The White House is considering a 20 per cent tariff on most imports, The Washington Post reported on Tuesday. President Trump floated this idea on the campaign trail. The Trump administration may ultimately opt for a different policy, like country-by-country tariffs based on each nation’s respective trade and non-trade barriers.

But a 20 per cent tariff rate seems to align with Navarro’s revenue projections, economists said.

The US imported about $US3.3t ($5.2t) of goods in 2024. Applying a 20 per cent tariff rate to all these imports would yield about $US660b ($1t) of annual revenue.

“That is almost certainly the mental math Peter Navarro is doing — and that mental math skips some crucial steps,” said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist at the White House Council of Economic Advisers during the Biden administration.

That’s because an accurate revenue estimate must account for the many economic impacts of tariffs in the U.S. and around the world, economists said. Those effects combine to reduce revenue, they said.

A 20 per cent broad tariff would raise about $US250b ($396b) a year when taking those effects into account, according to Tedeschi, citing a Yale Budget Lab analysis published Monday.

There are ways to raise larger sums — but they would involve higher tariff rates, economists said. For example, a 50 per cent across-the-board tariff would raise about $US780b ($1.2t) per year, according to economists at the Peterson Institute for International Economics.

Even that is an optimistic assessment: It doesn’t account for lower U.S. economic growth due to retaliation or the negative growth effects from the tariffs themselves, they wrote.

Why revenue would be lower than expected

Tariffs generally raise prices for consumers. A 20 per cent broad tariff would cost the average consumer $US3400 to $US4200 ($6654) a year, according to the Yale Budget Lab.

Consumers would naturally buy fewer imported goods if they cost more, economists said. Lower demand means fewer imports and less tariff revenue from those imports, they said.

Tariffs are also expected to trigger “reduced economic activity,” said Robert McClelland, senior fellow at the Urban-Brookings Tax Policy Center.

For example, US companies that don’t pass tariff costs on to consumers via higher prices would likely see profits suffer (and their income taxes fall), economists said. Consumers might pull back on spending, further denting company profits and tax revenues, economists said. Companies that take a financial hit might lay off workers, they said.

Foreign nations are also expected to retaliate with their own tariffs on US products, which would hurt companies that export products abroad. Other nations may experience an economic downturn, further reducing demand for US products.

“If you get a 20 per cent tariff rate, you’re going to get a rip-roaring recession, and that will undermine your fiscal situation,” Zandi said.

There’s also likely to be a certain level of non-compliance with tariff policy, and carve-outs for certain countries, industries or products, economists said. For instance, when the White House levied tariffs on China in February, it indefinitely exempted “de minimis” imports valued at $US800 ($1268) or less.

The Trump administration might also funnel some tariff revenue to paying certain parties aggrieved by a trade war, economists said.

President Trump did that in his first term: The government sent $US61b ($96.7b) in “relief” payments to American farmers who faced retaliatory tariffs, which was nearly all (92 per cent) of the tariff revenue on Chinese goods from 2018 to 2020, according to the Council on Foreign Relations.

The tariffs will also likely have a short life span, diluting their potential revenue impact, economists said. They’re being issued by executive order and could be undone easily, whether by President Trump or a future president, they said.

“There’s zero probability these tariffs will last for 10 years,” Zandi said. “If they last until next year I’d be very surprised.”

Why this matters

The Trump administration has signalled that tariffs “will be one of the top-tier ways they’ll try to offset the cost” of passing a package of tax cuts, Tedeschi said.

Extending a 2017 tax cut law signed by President Trump would cost $US4.5t ($7.1t) over a decade, according to the Tax Foundation. Trump has also called for other tax breaks like no taxes on tips, overtime pay or Social Security benefits, and a tax deduction for auto loan interest for American made cars.

If tariffs don’t cover the full cost of such a package, then Republican lawmakers would have to find cuts elsewhere or increase the nation’s debt, economists said.