The Steep Costs of Trump Expanding Tariff Power Under Section 301

Section 301 wasn't supposed to be a presidential blank check. Yet that's increasingly how it has been used. The latest lawsuit challenging the Trump administration's latest tariffs argues that the statute doesn't authorize this latest round of import taxes. The courts will sort out that legal question in due course.

But the lawsuit highlights a broader problem: Section 301 has steadily evolved from a targeted enforcement tool into an increasingly elastic source of presidential tariff authority in which the president can impose tariffs because "the president said so." If every trade dispute can justify sweeping tariffs, then the statute's limiting principle has largely disappeared.

Congress enacted Section 301 as part of the Trade Act of 1974 to combat unfair foreign trade practices. It authorized the president to respond when another country maintained discriminatory policies that burdened U.S. commerce, using targeted retaliation to encourage reform and open foreign markets. In other words, Congress designed Section 301 to function like a scalpel, not a sledgehammer.

Section 301 was built around leverage. The idea was to impose costs on foreign governments until they removed unfair trade barriers. That logic begins to break down when tariffs become untethered from the specific conduct they're supposed to address.

The Competitive Enterprise Institute has observed that recent Section 301 actions often feature expansive investigations, weak causal links, and tariffs extending far beyond the industries connected to the alleged misconduct. The result is an increasingly flexible statute capable of supporting almost any desired tariff outcome.

The Cato Institute adds that these measures appear less focused on correcting unfair trade practices than on preserving a preferred tariff policy. In that sense, trade enforcement risks becoming a rationale rather than the objective. Once almost any international grievance can justify sweeping import taxes, Section 301 stops functioning as a narrowly tailored trade law and starts looking like an open-ended delegation of Congress's tariff power.

The mismatch between the alleged harm and the proposed remedy is another sign of how elastic Section 301 has become. Even accepting the administration's claims about forced labor, the Cato Institute analysis also finds that the amount of trade plausibly affected is a tiny share of overall commerce (see below). Yet the response is not a narrowly tailored correction of a specific distortion; it is a sweeping tariff regime affecting trillions of dollars in imports. When the remedy is significantly larger than the underlying problem, it starts looking less like trade enforcement and more like economic punishment.

Perhaps the courts will conclude that the statute permits this approach. But if Section 301 can be stretched to accommodate virtually any broad tariff program, its limits become difficult to identify. And when the limits of a delegated power become impossible to identify, the delegation itself deserves a closer look.

The concerns surrounding Section 301 are not limited to statutory interpretation or presidential power. They also involve the very real economic costs created by expanding tariff authority. According to the Penn Wharton Budget Model, Section 301 tariffs alone are projected to cost Americans approximately $1.05 trillion over the next decade. Those costs do not vanish at the border. They are absorbed by businesses and consumers through higher prices, increased input costs, and disrupted supply chains.

The National Taxpayers Union notes that adding the costs of Section 232 national security tariffs brings the total burden of these tariff policies to roughly $2.2 trillion over ten years. That is a significant economic consequence flowing from executive decisions that increasingly rely on broad interpretations of existing authority. Tariffs may be imposed by presidents, but their costs are paid throughout the economy.

Section 301 was never meant to be a blank check for presidential tariff authority. It was designed to address specific unfair trade practices, not serve as a legal scavenger hunt for whatever tariff justification an administration can find. The courts may decide whether this latest theory passes muster, but Congress should make clear that Section 301 is not an all-purpose authorization for presidents to impose taxes whenever they want. 

If Congress does not reclaim its tariff authority, the executive branch will have expanded power to tax the American people into higher prices, distorted markets, and fewer protections. I thought that this country was founded on a war in which Americans fought against unfair taxation. History does not repeat itself, but it's amazing how it rhymes. 

The Sanctioning Russia Act Won't Stop Putin, But the Tariffs Will Expand Presidential Power

When Russia invaded Ukraine in 2022, Western governments responded with one of the most sweeping sanctions regimes in modern history. At the time, I questioned whether economic sanctions would compel Vladimir Putin to change course, noting that they often impose heavy economic costs while producing mixed political results. 

Four years later, Russia remains at war, and Congress is now debating legislation that would expand presidential tariff authority in an effort to increase pressure on Moscow. Instead of rushing forward, lawmakers should consider what the past four years have actually taught us about sanctions, tariffs, and constitutional government.

Ryan Young, a senior economist at the Competitive Enterprise Institute, scrutinizes the argument that the Sanctioning Russia Act would have any meaningful impact on the war in Ukraine. Since direct trade between the United States and Russia is already minimal, new tariffs would do little to reduce Russian export revenue. The bill's broader use of secondary tariffs against countries buying Russian energy also raises concerns. Young argues that these tariffs are unlikely to change the policies of major trading partners while potentially creating diplomatic conflicts and disrupting broader U.S. trade relationships.

The National Taxpayers Union's chief concern is not simply the size of the proposed tariffs, but the uncertainty surrounding them. The legislation gives the president broad discretion to determine which countries are targeted and what tariff rates they receive, while requiring the list of affected countries to be recalculated every 180 days. 

As global energy markets change, countries could move on or off the list with little warning. Businesses can adapt to almost any rule, but they struggle when the rules themselves are constantly changing. This is why Congress should write clear, predictable laws rather than leave fundamental trade decisions to executive discretion.

If that were not enough, there are issues with constitutional governance. Rather than asking whether additional sanctions on Russia are warranted, the Cato Institute asks whether Congress should grant the president another broad source of unilateral tariff authority. 

The bill allows the executive branch to determine which countries are targeted, what data are used to identify them, what tariff rates apply, and which nations qualify for exemptions. Such discretion extends far beyond Russia policy and could easily be used as leverage in unrelated trade negotiations. Congress should be reclaiming its constitutional authority over tariffs, not delegating even more of it to the executive branch.

Russia's aggression deserves a firm response, but good intentions are no substitute for sound public policy. If additional tariffs are create uncertainty for businesses, further erode Congress's constitutional authority, and are unlikely to change Putin's behavior, lawmakers should think twice before rushing this bill into law. 

Effective foreign policy requires realism, constitutional restraint, and a willingness to question politically popular ideas. Otherwise, Washington risks punishing everyone except the people it intends to punish. Hope is not a strategy, and tariffs are not a substitute for one.

Trump's Tomato Tax: A Tariff With Predictable Outcomes

If your grocery bill is higher than usual, one place to look is tomatoes. The price of tomatoes is up 23 percent compared to last year (see Rutgers data below). Part of that increase can be attributed to higher transportation costs or fluctuations in Florida's weather. But let's not overcomplicate this. 

The biggest change in the tomato market was not meteorological: it was policy. Last year, the U.S. changed its tariff-free policy on Mexican tomatoes and replaced it with a 17 percent tariff. When 90 percent of tomatoes come from Mexico and you tax those tomatoes, it should not be a surprise when the price of tomatoes increases. 

As a matter of fact, there were many that warned about these negative effects, myself included. It is not complicated what happened here. When the U.S. slaps tariffs on Mexican tomatoes, which is the primary source of tomatoes for the U.S., you are going to get more expensive tomatoes. Not maybe or probably. You will get more expensive tomatoes. 

Tariffs are taxes on imports. Like most taxes, they do not sit quietly in the background doing nothing. They change consumer behavior, such as having tomato imports in 2025 declined by $500 million in comparison to the previous year. The tariffs worked their way through the supply chain and made their way to the consumer, which is also not surprising since 95 percent of tariffs are paid by the consumer. 

None of this is unique to tomatoes. This is how tariffs work. When you tax imports with tariffs, you reduce supply, distort markets, and raise prices. The specifics vary by product and tariff amount, but the mechanism does not change. 

Whether it's tomatoes, steel, or washing machines, the pattern is the same: a concentrated benefit for a small group of well-connected domestic producers while everyone else pays the price. Protectionists can call that "saving jobs" all they want, but consumers experience fewer choices and higher prices. Tariffs don't protect markets. They just make them more expensive. 

Trump's Tariff Exemptions Are Harmful Protectionism with More Holes than Swiss Cheese

Tariffs have been a staple of Trump's trade policy in both of his presidential terms. When politicians propose a tariff, they make it sound like this simple tax rate because they are presented as universally applied. However, reality intervenes in the form of political discretion. As recent research from the American Action Forum (AAF) shows, that discretion creates exemptions.

AAF found that the "Liberation" Day tariffs had an exemption rate of 38 percent. With the newer Section 122 tariffs, that rate went up to 60 percent. The wider exemptions under Section 122 reduced the effective tariff rate from 14 percent to 10 percent. 

You might be wondering why I think this is a bad thing. After all, tariffs are import taxes. If the effective tax rate is lower, you would think that is better for the economy. Think again! Cato Institute trade scholar Scott Lincicome details the hellish labyrinth that tariffs have become. Tariff rates do not vary only by product. They do so by country, by statutory authority, and how multiple tariff regimes interact. 

Because Trump is trying to use multiple statutory authorities to push his tariff agenda, he has increased the number of tariff regimes in the U.S. tariff code from 3 in 2017 to 17 in 2025. More to the point, the percent of imports being subject to a tariff went from 0.02 percent in 2016 to 49.2 percent in 2025.

This has made tariff compliance a legal and logistical challenge of Herculean proportions. Rates stack inconsistently, exemptions are applied unevenly, and the rules change frequently. Tariffs become a hidden tax because firms have to devote time, hire specialists, and navigate trade uncertainty. A Federal Reserve report last year estimated that the compliance costs are the equivalent of 1.4 to 2.5 percent ad valorem tariff. Given that 95 percent of tariffs on U.S. imports are paid by the everyday American consumer, guess who is ultimately paying the brunt of those compliance costs? 

But those costs are not distributed evenly. Large firms can afford trade lawyers, customs specialists, and representation in Washington to do the rent-seeking and earn the exemptions. Smaller firms generally cannot. The asymmetry creates a divide between those who can navigate the rules and those who cannot. What is even more amusing is that the exemptions are a tacit admission from the Trump administration that tariffs are too blunt and harmful. Plus, they undermine the administration's rationales for the tariffs, particularly the rationale about generating government revenue.

While advocated for as a simple, universal tax rate, tariffs are a complex behemoth that incurs additional costs to businesses. The irony is that a policy that is presented as being straightforward ends up being a convoluted, opaque system that benefits well-connected businesses while screwing over the American people the protectionists claimed to help. 

The Fed Finds That Trump's Tariffs Are Propping Up Inflation

In the United States, we have been told a simple story about inflation: the pandemic hit, the government intervened, and prices went up. As I argued before, quantitative easing from the Federal Reserve combined with high levels of government spending set up the U.S. for high levels of inflation in 2022-23. What this does not explain so well is why prices have not come back down. 

According to a recent study from the Federal Reserve, there is a reason why: Trump's tariffs. Even as the pandemic faded in the distant memory, the tariffs kept the inflation hangover lingering beyond the pandemic. This is not a mystery. Tariffs raise consumer prices because they are a tax on imports. Business then pass on the majority of that cost to consumers. As long as the tax remains, the tariffs create a pre-tax and post-tax price, which keeps prices elevated. 

What the Federal Reserve study does is calculate the counterfactual of "what would have happened if there were no tariffs?" The answer is bonkers when you think of the political hoopla about affordability. If Trump's 2025 tariffs were never implemented, consumer prices would be back to pre-pandemic levels (see below). 

As frustrating as this is, this is far from surprising. Last August, I discussed what the economic effects from these tariffs would be. Those costs ranged from a lower GDP and higher unemployment to....you guessed it: higher consumer prices. This is additional evidence to show that it is the everyday American that is paying for Trump's tariffs, not China, Mexico, or any other foreign country. It was lousy government policy that got us into this mess, and it was the tariffs that kept the inflation sticking around much longer than necessary. 

This problem was avoidable as it was predictable. If Congress wants to do something about affordability, it can reclaim its tariff powers enumerated in the Constitution. It turns out that "America First" pricing means that it is the everyday American that first and foremost pays the costs for Trump's tariff folly. 

Supreme Court Strikes Down Trump's Tariffs: Why SCOTUS Didn't Add $2.4T to the Debt

Last Friday, the U.S. Supreme Court (SCOTUS) announced a much-awaited decision. In a 6-3 ruling, SCOTUS declared that Trump's tariffs under the International Emergency Economic Power Act (IEEPA) are unconstitutional. I took this as a win not only for the separation of powers, but also for the economic wellbeing of the American people. Economic estimates calculated that these tariffs would have cost consumers billions of dollars, reduced GDP growth, and harmed net employment while doing little in the way of measurable benefits. In a previous piece, I also point out that it is not only economic modeling. History has shown these adverse economic effects to materialize as a result of tariffs. As I wrote earlier this month, these tariffs are even affecting U.S. national security. So yes, I am quite happy and relieved to see this SCOTUS ruling. 

Counting Revenue That Does Not Exist

Yet I noticed a couple of estimates that came out in response to the ruling, and they were both budgetary in nature. The first estimate is from the Wharton School of Business, which a leading business school in the U.S. Wharton estimates that unless replaced by another revenue source, future tariff revenues will fall by half. The second estimate is from the bipartisan Committee for a Responsible Federal Budget (CRFB). CRFB writes that "SCOTUS tariff ruling could add $2.4 trillion to the debt [over the next decade]." According to the CRFB, this ruling could raise the debt-to-GDP ratio from the baseline 120 percent to 125 percent. One of the reasons that this SCOTUS ruling matters is because the Trump administration presented the tariffs not only in terms of trade policy, but also as a source of government revenue. 

The Mirage of "Lost Revenue"

Since the administration touted the tariffs as a revenue source, the framing of "the SCOTUS ruling adds debt" is especially misleading. Tariff revenue under the likes of Section 232 or IEEPA are temporary, process-dependent, and potentially disruptive on an international level. Assuming that the tariffs would last indefinitely or that there would not be economic blowback is unrealistic. The SCOTUS ruling does not add to the debt. Pretending that future tariff revenue increases debt ignores the reality that the money has not arrived in the government's coffers. An absence of a tax increase is not the same thing as an increase in the debt. 

Tariffs only shift resources from consumers and businesses to the government temporarily. They do not magically create wealth out of thin air. Calling tariffs "revenue" distracts from the fact that tariffs are a tax. The government does not have first dibs on the gains from private economic activity. Baseline budgeting treats the tax revenue as a permanent fixture once enacted. As I argued last September, the economic and fiscal realities of tariffs made tariffs an unreliable revenue source, especially given the negative economic effects and the risk of retaliation. That disconnect between baseline budgeting and economic reality is why the claim that "SCOTUS ruling causes debt" rings hollow.

The Real Culprit: Congress' Credit Card

The baseline assumption is that Congress does nothing else, that the currently enacted laws are on auto-pilot. This brings us to what really causes debt. U.S. federal debt does not exist because SCOTUS declared Trump's IEEPA tariffs unconstitutional. It is because the government has consistently spent more money than it makes. That is an outcome of basic accounting. As the most recent Congressional Budget Office (CBO) Budget and Economic Outlook shows, the government is projected to create an average annual deficit of 6.1 percent from 2027 to 2036. Keep in mind that this is higher than the 1976-2025 average of 3.8 percent. The fact that the CBO projected before the tariff ruling that the debt-to-GDP ratio would be at 120 percent, a ratio that is higher than it was after WWII military spending, should make us pause and ask what the real issue is.

The Deficit Solution Congress Refuses to Touch

As I detailed in 2024, tax cuts from the Tax Cuts and Jobs Act did not cause the economy to implode. Similarly, the absence of tariffs did not cause the debt "to explode" because of the SCOTUS ruling. It simply exposes how the U.S. economy is becoming increasingly fragile due to Congress' inability to get its spending under control. Tariffs, tax cuts, or emergency powers will not fix that insatiable, profligate spending. If you actually care about government spending (and if you are a U.S. citizen, you certainly should because of how it will directly affect you) and want a smaller deficit, don't go begging for more government revenue. Tell Congress to stop buying things it cannot afford.

2/12/2026 Hodgepodge: Interest on Debt, Who Pays for Trump's Tariffs, and National Guard Costs

This has been quite a busy week for me personally. I wanted to make sure that I got in two entries in this week, so I want to give a grab bag of some of the ongoings within the wonderful world of public policy. I hope to return to providing more in-depth analyses next week. 

Interest on U.S. Debt. Earlier this week, the Congressional Budget Office (CBO) released its Budget and Economic Outlook for the next ten years. This report has some eye-popping findings, such as the debt-to-GDP ratio is expected to hit over 120 percent in the next decade. For context, all that wartime spending for World War II only got the debt-to-GDP ratio to 106 percent. This is not the sort of record that the U.S. should want to break. Because of that profligate spending, the U.S. is paying off more interest on debt than ever. According to this report (p. 82), the U.S. government is projected to spend a whopping $16.2 trillion (yes, that is trillion with a "t") on interest between 2027 and and 2036.

Who pays for Trump's tariffs? Trump and Vance were under the belief that other countries were going to pay for Trump's tariffs, that Trump's tariffs are without cost or consequence. It turns out that is false. When I reported on this topic about three weeks ago, I covered a report by the Kiel Institute that says that the U.S. as the importing country pays 96 percent of the costs of the tariffs. What was not clear from this Kiel Institute report is whether the businesses paid or if it was the consumers. 

This is where the Budget and Economic Outlook comes into play. According to the CBO (p. 30), 95 percent of the tariffs were paid by raising consumer prices on U.S. consumers. This means that businesses have by and large passed on the costs to the everyday American. This lines up with a recent Tax Foundation estimate that Trump's tariffs are a tax of $1,000 in 2025 and $1,300 in 2026 for the average household. 

National Guard. In response to the rampant crime in Washington, DC, President Trump deployed troops to reduce crime in DC. Irrespective of the debate about whether this is effective, we now know how much this cost. The CBO recently released a report on how much all Trump's deployment of the National Guard to all cities cost, which was $496 million from August to December 2025. For DC alone, that was an amount of $223 million. Regardless of what you have to say about the crime rates, there has to be a more cost-friendly route to bring crime down without having to resort to using the National Guard. Perhaps another conversation for another time. 

Trump's Tariffs Are Helping Push U.S. Allies into China's Arms and Undermining National Security

Last week, British Prime Minister Keir Starmer visited Chinese President Xi Jinping. This is the first time a British PM visited since 2018. The purpose of this visit was to reset Sino-British relations. One of the topics of discussion at this visit was trade. If this were an isolated incident, that would be one thing. But other Western nations are initiating trade talks with China. Last month, Canada struck a new trade deal with China. Finland, Ireland, and Germany are also re-engaging with China. There are multiple reasons for other Western countries to re-engage with China, whether it is economic development, access to a large consumer market, investment flows, or shifting geopolitics. 

Unpredictable U.S. Foreign Policy Adds Fuel

Those shifting geopolitics are particularly notable. In the last month alone, the Trump administration has captured Nicolás Maduro and threatened allies with tariffs in order to chase his dream of annexing Greenland, the latter of which is categorically unwise. Trump's foreign policy unpredictability creates incentives to hedge against an increasingly unreliable ally, which is hardly unsurprising seeing more Western countries gravitate towards China. One major factor that I would like to cover today is Trump's tariff policy and how that is becoming a turnoff for the US' allies. I will caveat by saying tariffs alone do not explain why other countries are re-engaging with China, but it is a major element that is part of the broader drive towards a pivot, as this analysis from the Chatham House details. 

Trade Diversion: Another Form of Tariffs Backfiring

The sad part is that this pivot is wholly predictable. I have talked about trade retaliation before here at Libertarian Jew. There is direct retaliation, which is when a country responds to tariffs by implementing their own tariffs in response. Then there is indirect retaliation, such as trade diversion. Trade diversion is what happens when tariffs or other trade barriers cause countries to shift imports and exports away from the most efficient or preferred trading partner toward alternative countries simply to avoid higher costs. Under trade diversion, the trade does not disappear but rather gets rerouted. 

Historical Evidence of Trade Diversion

Trade diversion has played out in history more than once. During the 1930s with Smoot-Hawley, a National Bureau of Economic Research (NBER) paper shows how U.S. exports to retaliating countries fell by 28-33 percent, and trade diversion also occurred. Another NBER paper discovered trade diversion as a result of US agricultural tariffs from 1990 to 2014. In Trump's first term, tariffs on China caused China to divert $21 billion of trade flows away from the United States to other countries (see below). In its 2025 paper on responses to Trump's tariffs, the International Monetary Fund (IMF) recognizes trade diversion as a response. Additionally, a study from the North American Journal of Economics and Finance shows how the signing of NAFTA and preferential tariff treatment with Mexico and Canada shifted US imports away from Asian sources toward Mexico. 

Trump's Tariff Strategy and Consequences for National Security

Trump's current trade strategy fits within this historical pattern of trade diversion. The problem is that Trump's posture on tariffs will continue to agitate U.S. allies and make it more attractive for some allies to deepen their economic ties with China. What Trump seems to not understand is that national security is not merely about what the U.S. can produce, but also the allies that one can rely on in times of crisis or need. Research shows that economic cooperation lends itself to stronger security cooperation.

Since tariffs make allies economically worse off, they are incentivized to look elsewhere. Having these allies increase trade and investment with China will create increased strategic dependence on China. What is more is that this re-engagement will mean that U.S. allies will invest more in China and Chinese suppliers. This entanglement with the Chinese economy will make U.S. allies less likely to align with U.S. strategic priorities. When allies rely more on China, China gains leverage and the U.S. will have less influence in trade negotiations, diplomacy, and security concerns abroad. This will undermine U.S. influence, which in turn weakens U.S. national security. 

"America First" Becomes "America Alone"

Trump's tariff strategy ultimately defeats its own stated purpose. Trump is not isolating China or strengthening American security. He is weakening the very alliances that give the United States leverage on the global stage. With a tariff-first approach, Trump is treating allies as economic adversaries, which understandably leads allies to diversify their trading partners more, including toward China. As allies partner more with China, the United States loses its global influence. National security is not only about domestic production, but also partners who share risks, supply chains, and strategic goals. By undermining these foundations, Trump is handing China geopolitical leverage. By alienating allies and strengthening a rival, "America first" becomes "America alone" while China has the last laugh. 

Americans Pay, Trump Tariffs Stay: New Study Confirms Why Tariffs Are Ridiculous

From tomatoes and furniture to automobiles and movies, the U.S. tariff regime has expanded dramatically under President Trump's second term. Trump has insisted that tariffs would be paid by foreigners. Economists have shown that tariffs are hidden domestic taxes paid by the American people. This should not come as a surprise. As I explained last year, it was the American consumer that almost exclusively paid for the cost of Trump's tariffs in his first term. 

Now we have a study from the Kiel Institute released last week showing that about 96 percent of tariffs in Trump's second term have been paid for by the American people. That translates to Americans paying $267 billion in tariffs last year. This study is significant because it uses recent trade data and millions of imports transactions totaling trillions of dollars in trade. This study acts as hard, empirical evidence for the second-term Trump tariffs that goes beyond theory or anecdote. 

So why do Americans end up paying for Trump's tariffs? Tariffs are taxes on imports. When foreign exporters decide to not reduce their prices enough to absorb them (and let's be real...they rarely do, as we see with this new study), U.S. importers face higher costs. Most firms respond by passing the increase along to consumers, either directly in retail price increases or indirectly through higher costs for goods that rely on imported inputs. In effect, tariffs function as a hidden tax on American households, hitting every buyer in the store, from groceries to electronics. 

Trump's tariff rhetoric rested on more than the claim that foreign exporters would pay for them. Trump also promised that tariffs would protect American industries and workers, and that they would strengthen the United States in trade negotiations. The reality, as the Kiel Institute study makes crystal clear is that 96 percent of the cost of Trump's second-term tariffs have been borne by American consumers and businesses, not foreigners. 

As for protecting domestic producers, this protects a small group of well-connected producers, but causes net unemployment. This outcome played out with Trump's tariffs on steel and aluminum. Those modest gains to the protected industries are infinitesimally small in comparison to the cost to the consumers. In net, the tariffs act as a wealth transfer from the American people to the few producers who are protected as a result of Trump's tariffs. 

Regarding the leverage in international trade, it does not fare much better. Trump's logic was simple: raising the cost of exports for foreign countries exporting to the United States and they will capitulate to Trump's demands. What we see is that it is not foreign countries that pay for this bargaining tool, but it is U.S. consumers that foot the bill for Trump's negotiating strategy. This negotiation advantage is rhetorical in its bluster, but divorced from economic reality. 

Whether it is the idea that foreigners pay tariffs, the U.S. economy fares better, or it provides the United States with better negotiating leverage, we see that Trump's tariffs are myths built on a flimsy house of cards. Trump's tariffs ended up being a wealth transfer from the American people to select, well-connected domestic firms. The Kiel Institute study is not merely an academic exercise. It provides a clear and evidence-based counterargument against the populism that drives Trump's tariff policy. Americans get stuck with the bill, economists are shaking their heads, Trump's tariff promises remain unfulfilled, and yet the tariffs remain. If there were a 21st-century textbook example of trade travesty, these tariffs would be it. 

Paying Americans to Pay More: The Economic Nonsense of Trump’s Tariff Dividend Plan

Very few things can be more alluring to voters than "free" money. Whether it is COVID-era stimulus checks, student loan forgiveness, or the child tax credit expansion, the idea that the federal government can cut a check and make everything hunky dory is populist hokum. To quote Milton Friedman, "there is no such thing as a free lunch." The latest twist on this handout scheme comes from the White House. This past Sunday, President Trump posted such a proposal on Truth Social: a $2,000 tariff rebate for low- and middle-income households. He frames it as a "dividend" to present it as a reward for his tariff policy. I would frame it as an insincere policy that, much like the rest of his tariff policy, is poorly thought out.

Mismatch Between Dividend Cost and Tariff Revenue

Trump is promising a $2,000 check funded by the tariff revenue. Similar to his proposal to replace the income tax with tariff revenue, the MAGA math does not math. According to the bipartisan Committee for a Responsible Federal Budget (CRFB), Trump's tariff dividends will cost $600 billion per year. This far exceeds the projected $300 billion in revenue from Trump's new tariffs. This math refutes Trump's claim that there is so much tariff revenue that he can both pay out these dividends and "substantially pay down national debt." This does not pay down the debt, but rather adds to it. This proposal is also within the context of the federal government racking up a $1.8 trillion deficit this past fiscal year. 

When the Dividend Defeats the Tariff

Even if the numbers somehow balanced, the policy would still fail on principle. This past April, I discussed Trump's tariff rationales. I detailed how none of them made sense on their own, never mind when combined. One of those rationales from the Trump administration was to increase government revenue. Especially since the rebates exceed the revenue by about $300 billion, rebating it directly to citizens defeats the Trump administration's purported fiscal purpose.  

It also undermines his goal to revive domestic manufacturing. Why? The point of the tariff with the manufacturing revival rationale is to make domestic goods or services cheaper relative to foreign ones. With the dividend check, it offsets the increase in import prices, which means that the consumer sees the same effective cost as they did pre-tariff. Some might still opt for the cheaper domestic option, but the dividend blunts the intended goal of boosting domestic manufacturing. 

Even worse, tariffs rarely go unanswered. Trading partners routinely implement retaliatory tariffs in response with tariffs of their own, targeting such industries as machinery, farm goods, and manufactured products, which are some of the industries that Trump purports to champion. Those retaliatory tariffs squeeze American producers, blunt the competitive edge gained from tariffs, and further illustrate how tariffs are an economic example of metaphorically shooting oneself in the foot. 

Trump Inadvertently Admits That Tariffs Harm Americans

This dividend is more perturbing than the dividends subverting his own administration's rationales for the tariffs. Trump claims that the tariffs will "make America rich again." If tariffs were truly enriching, there would be no need for a dividend in the first place. The fact that there is a dividend is a tacit admission that tariffs are harmful to the everyday American. It distracts from the reality that it is the U.S. consumers that pay for Trump's tariff tomfoolery. Last May, I covered how over a dozen studies confirm that Trump's tariffs from the first term increased consumer prices. On top of that, a working paper from the National Bureau Economic Research (NBER) released last month illustrates how domestic consumers paid the price of Trump's tariffs from his first term and that the cost of the tariff exceeded the government revenue collected (Flaaen et al., 2025).

Consumer price increases were not only observed during Trump's this first term. They are showing up in Trump's latest round of tariffs. Estimates from the Tax Foundation suggest that tariffs imposed under the current regime have already pushed retail prices up by about 4.9 percentage points relative to the pre-tariff trend. Part of the price increase comes indirectly when domestic firms raise their own prices after tariffs on imports make foreign goods more expensive and less competitive. 

Despite the increase, the pass-through to consumers is less than the full tariff rate, which points out that firms absorbed some cost and consumers acted cautiously, making the overall price impact more modest than many initial estimates suggested. A more modest price increase does not make this a win. These smaller costs still reflect economic inefficiency (also known as deadweight loss) since resources are diverted toward less competitive domestic production and away from the most efficient global suppliers. 

Tariffs and Inflation

Individual consumer price increases were not only due to the tariffs. These tariffs would have an inflationary effect. Both the St. Louis Federal Reserve (Soyres et al., 2023) and the San Francisco Federal Reserve (Jordà et al., 2022) found that the COVID-era stimulus checks contributed to the 2021-22 inflation. The COVID stimulus checks can be used as a proxy for what would happen. Both inject purchasing power into households, i.e., aggregate demand spikes. Since it is a one-time windfall, it would more likely lead to a burst in consumption (and not saving), much like with the stimulus checks. What makes the tariff dividends worse is that tariffs raise the cost of goods, which limits supply. Given that the tariffs raise prices while the rebates raise consumer demand, this dividend could very well create even more inflationary pressure than the COVID stimulus checks.   

Postscript

When all is said and done, Trump's dividend is more than cognitive dissonance or the mental gymnastics done to be apologetic for protectionism. It is a self-inflicted parody of supposedly sound economic policy. What Trump is doing is taxing the American people, laundering that money through Washington, and giving part of it back as a "dividend" so he can pat himself on the back and pretend that he solved a problem that he himself created. This is akin to setting your house on fire and then congratulating yourself for roasting some marshmallows and creating some s'mores over the ashes of what was once your home. With tariffs, consumers get burned through higher prices, fiscal discipline goes up in flames, and economic logic goes out the window. This is what happens when the U.S. government tries to fix a problem that it created: the everyday citizen pays the price while sacrificing freedom. Sadly, this is what passes for economic "wisdom" in 2025. 

From Furniture to Semi-Trucks: When "National Security" Tariffs Go Wild

When you think about a country beefing up its national security, you might think about missiles, tanks, submarines, or cyber defense. For Trump, it looks a little different. Last month, the Trump administration implemented furniture tariffs, including a 25 percent tariff on upholstered furniture and kitchen cabinets (as of January 1, they will increase to 30 and 50 percent, respectively); as well as a 10 percent tariff on softwood lumber. On top of the furniture tariffs, there are the 25 percent tariffs on medium- and heavy-duty trucks that went into effect last Saturday. 

These tariffs were authorized under Section 232 of the Trade Expansion Act of 1962, which allows the president to impose tariffs on imports deemed a threat to national security. In other words, we have to be on the lookout for killer kitchen counters and heat-sinking sofas. Tongue-in-cheek remarks set aside, Trump's manipulation of Section 232 is more than merely about the economic costs of tariffs, as furniture outlet IKEA deciding to hike furniture prices in response to Trump's furniture tariffs illustrates. There are major national security implications for what Trump is doing. 

As the American Trucking Associations pointed out, Trump's truck tariffs will increase costs for carriers, increase operational costs for fleets, reduce freight volumes, and disrupt the integrated North American supply chain. Keep in mind that national security is not solely about militaries. National security depends on robust logistics, well-functioning supply chains, and a healthy economy. When logistical readiness is diminished, supply chain resilience is eroded (see Supply Chain Today chart below), and the weak rationale creates policy uncertainty and subsequent delay in investments. In short, what Trump's tariffs on trucks do is undermine national security. 

While furniture and lumber tariffs do not have the same impact on logistics or the supply chain, they certainly weaken the economy. As the National Association of Home Builders brings up in its analysis, Trump's tariffs will likely raise housing and construction costs (up to an additional $10,000 per home), strain supply chains that already heavily depend on imports, exacerbate a housing shortage, and hamper the domestic building sector when domestic production is unable to meet demand. This is even more nonsensical given that about half of U.S. lumber imports come from Canada, a long-standing ally and trade partner. Similar to the truck tariffs, national security flows from economic strength, resilient supply chains, and robust global ties. What the furniture tariffs do is weaken those essential foundations.  

When all is said and done, Trump is not making the United States safer with tariffs. He is making it weaker. By weaponizing "national security" to justify his blatant protectionism, his administration undermines the very pillars on which true national security rests: a strong economy, reliable supply chains, and trusted alliances. Instead of fortifying our defenses, his tariffs drive up costs, strain critical industries, and alienate long-standing partners. National security is built on openness, cooperation, and resilience, which is similar to what I argued last year about how free trade improves national security. If the actual goal is to keep the United States secure, weakening economic foundations and global partnerships is not strength. It is protectionist stupidity.

Trump's Tariff Mirage: His Tax Plan to Replace Income Tax With Tariffs Does Not Add Up

President Trump is clearly not happy with the way his legal case for the "Liberation Day" tariffs is going. Yesterday, Trump said that losing this legal battle would "cause the U.S. to suffer greatly" and that "our country has a chance to be unbelievably rich again [with the tariffs]." This pattern of rhetoric glorifying tariffs is nothing new. Earlier this week, he opined that removing tariffs, what should simply be referred to as import taxes because that is what tariffs are, would turn the United States into a third-world country. Let us forget for a moment that the United States has been a developed country for decades without the high tariff rates that Trump is trying to implement. In April, Trump said that tariff revenue could be so great that it could replace the federal income tax. The problem with that assertion is that it does not make economic sense nor would it make America great again. 

Economic Logic Problem

First, as I pointed out in April, the rationales used by Trump for tariffs do not make sense. Trump both wants to protect American workers from "unfair foreign protection" and generate tax revenue. Either tariffs will be high enough to deter imports from coming in, or they will generate enough revenue to make America rich again. These goals are in tension with one another, and maximizing one goal comes at the expense of the other. Trump wants to have his protectionist cake and eat it too, but that is not how tariffs work. 

Revenue Realities

Even setting aside these contradictions, the math to replace the federal income tax with tariffs simply does not add up. With the current tariffs in play, the Congressional Budget Office (CBO) estimated last month that the tariffs would generate $3.3 trillion in revenue over the next decade. Contrast this to the CBO's January 2025 federal income tax estimate (which was made before the tariffs were enacted) over the same period, which is $36.9 trillion (see below). That is a difference of $33.6 trillion, or put differently, the tariff revenue is projected to be less than 10 percent of the income tax revenue. The gap in revenue levels makes replacement impossible. So why is it that tariffs bring in so much less revenue than the federal income tax? 

Historical Perspective

As the Tax Foundation reminds us, the federal government of the late 19th century and early 20th century, which Trump is romanticizing, was different from today's government. Back in the day, federal government spending was about 2 percent of total GDP. Thanks to the implementation of the federal income tax, the government's ability to collect revenue expanded, in no small part to its large tax base. Now, the government spends the equivalent of 22.7 percent of GDP. Tariff revenue could not pay for Medicare, Medicaid, or Social Security, never mind the rest of government spending.  

Why Tariffs Are More Harmful Than the Income Tax

Since the tax base of imports is smaller, the economic harm per unit of trade is higher. This means that raising meaningful revenue means tariffs need to be high. This results in greater economic damage than a broad-based income tax because tariffs tend to distort product and supply chain markets more directly than income taxes, which more often than not influence individual decisions cut as work and savings.

Tariffs affect what to buy, where to buy it from, and how to produce it. They are distortive because they only affect imports, as opposed to all goods. It is more distortive in part because goods from different countries get imposed with different tariff rates. With tariffs, it might cause consumers to buy overpriced domestic goods or force businesses to redesign supply chains inefficiently. As a result of shifting domestic production to less efficient domestic industries, this misallocation harms overall economic efficiency. 

Furthermore, tariffs also hit lower-income households harder because they spend a larger share of their income on goods. To make matters worse, tariffs are systematically higher on lower-end versions of goods (about an average of 4 percent) than their high-end counterparts (Acosta and Cox, 2024), which hits low-income households even harder.  

As I explained last year, free trade is beneficial to the poor because it reduces their cost of living while increasing the price of what they sell. Since tariffs make the economy less free, Trump's tariffs will have the opposite effect on cost of living, as we have seen in the past. Additionally, the Peterson Institute for International Economics (PIIE) showed that a revenue-neutral swap of $780 billion in tariffs for income tax cuts would cause significant losses, including 8.5 percent of after-tax income for the bottom quintile. 

Global Implications

Unlike the income tax, tariffs invite the possibility for other countries to retaliate with their own taxes. Not only does this hurt U.S. exporters, but it disrupts global supply chains and diminishes global trade diminishes, much like it did during the Great Depression. Those higher import costs could very well put upward pressure on prices, thereby risking stagflation. This would likely appreciate the dollar, which would worsen trade deficits and undermine international collaboration. Furthermore, if Trump continues imposing tariffs on the U.S.' allies, he risks alienating allies. This could push allies towards China, which would undermine stated national security goals while diminishing the U.S.' influence in the global economy, as well as in East Asia specifically.

Conclusion

Trump's proposal to have tariffs guide policy on government revenue is not only economically unsound but historically misguided.  When these tariffs were at their heyday in the 19th century, it resulted in lower economic productivity in terms of propping up inefficient enterprises, lower standard of living, and higher consumer prices. If Trump goes ahead with this inane idea, not only will he harm the economy, but he will anger the United States' allies while failing to generate enough revenue to replace the federal income tax. Tariffs are no substitute for a broad-based income tax. Reviving tariffs under the guise of making America great again might make for a catchy slogan on the campaign trail, but in practice, it would cause enough economic decline to send the U.S. economy back to the 19th century, and not in a good way. 

Liberation Day Tariffs? More Like Economic Captivity Threatening the U.S.' Economic Future

Since the beginning of his second term, President Trump has aggressively pursued tariffs. He implemented tariffs on Canada, China, and Mexico under the guise of the War on Drugs. There were the 25 percent tariffs on steel and aluminum, as well as the tariffs on automobiles and auto parts. Trump created more tariff turbulence with the so-called "reciprocal" tariffs. Announced on April 2 during what Trump labeled as "Liberation Day," these new tariffs entail a basic universal tariff of 10 percent along with additional tariffs ranging from 10 to 50 percent, depending on the country. Shortly after that announcement, I detailed how a) these tariffs are not truly reciprocal, but based on shoddy math; and b) Trump's rationale for these tariffs, the trade deficit, is baseless. 

Then in May, the U.S. Court of International Trade unanimously ruled that Trump's "Liberation" Day tariffs, along with tariffs adopted under the International Emergency Economic Powers Act of 1977 (e.g., the fentanyl-related tariffs), are unconstitutional. Unfortunately, the Supreme Court decided to not rule on the constitutionality of these tariffs before its last session was over. As such, a number of the country-specific "Liberation" Day tariffs (e.g., Brazil, Canada, India) went into effect last Thursday. The baseline 10 percent tariff from the "Liberation Day" announcement has been in effect since April 5. In 2023, I wrote a piece on what a universal 10 percent tariff would look like. Basically, it it is a regressive tax on U.S. consumers that will raise prices, strain supply chains, and particularly punish small businesses and ordinary households. But more on that in a moment. 

I already wrote about the fentanyl-related tariffs and the "Liberation" Day tariffs would have had a much greater impact on the economy, which is why I am focusing on those tariffs instead. The "Liberation" Day tariffs will constitute the largest tax increase as a percent of GDP since 1982 (Tax Foundation). The economic effects of these "Liberation Day" "reciprocal" tariffs had they been implemented cannot be overstated. Here are some estimates of economic impact from what these "Liberation Day" "reciprocal" tariffs would have cost (unless otherwise specified):

• American Action Forum: In April, the estimated cost to U.S. consumers and businesses was up to $371 billion a year. However, in August, AAF amended that estimate to over $400 billion, which is mainly due to the larger 30-percent tariff imposed on the European Union since the initial "Liberation Day" announcement. 
• JPMorgan: Last month, JPMorgan estimated that the effect of Trump's tariffs would increase the Personal Consumption Expenditures (PCE) index by 0.2-0.3 percentage points. This is to say that these tariffs will have inflationary effects, which will probably give the Federal Reserve pause in lowering interest rates. 
• Tax Foundation: An estimated $3.1 trillion over ten years ($310 per year), with the average household cost amounting to a $2,100 for the average household in 2025 alone.
• Wharton School of Business: Reduce GDP by 8 percent and wages by 7 percent. A middle-income household faces a $58,000 lifetime loss in earnings. These tariffs would be twice as distorting as increasing the corporate tax from 21 percent to 36 percent, which is impressive given how distorting corporate taxes are. 
• Yale University: In April, Yale's Budget Lab estimated the following effects of the "Liberation" Day tariffs: consumer prices to increase by 1.3 percent in the short-run; the average household would lose $2,100 in purchasing power; and a reduction U.S. GDP growth by 0.5 percentage points. 
• In its August update, the Budget Lab did not separate the "Liberation" Day tariffs. However, it confirms that with all the tariffs, the effective tariff rate will be 17.5 percent, which is the highest since 1935. This aggregate effect is estimated to translate into an average per household loss of $2,400 in purchasing power for the year 2025; a US GDP decline of 0.5 pp; and unemployment rising 0.3 percent (or a loss of 497,000 jobs). 

Keep in mind that these estimates are generally for the "reciprocal" tariffs alone.  When you compound these tariffs with the other tariffs, the overall effects of Trump's trade war are all the more glaring. As of August 1, the Tax Foundation's model puts its estimates of Trump's tariffs at a GDP reduction of 0.8 percent, a job reduction of 788,000 full-time equivalent (FTE), and capital stock decreasing by 0.7 percent. 

I want to point out something else that the American Enterprise Institute brought to my attention. A 0.8 percent GDP reduction might not sound like a lot at first. However, when you compare it to what the Congressional Budget Office projected long-term GDP to be before the "reciprocal" tariffs were in play (see below), it's a sizable reduction in GDP. 

The damage to the United States exceeds what think-tanks estimate or mainstream economic theory predict. We have seen this tariff terror before. During his first term, Trump's tariffs resulted in 166,000 fewer jobs, wages reduced by 0.14 percent, a GDP reduced by 0.21 percent, and an annual price tag of $51 billion. Even President Bush Jr.'s tariffs translated into 200,000 jobs lost and $4 billion in lost wages. 

Adding to this, the International Monetary Fund (IMF) analyzed tariffs across 151 countries from 1963 to 2014 (Furceri et al., 2019). Guess what the IMF found? "Tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance." That last bit about the trade balance is more important in these latest round of tariffs because trying to fix the trade balance is Trump's supposed justification for these farkakte "reciprocal" tariffs in the first place.

It would not have been surprising to see that these tariffs would have harmed investor and consumer confidence. History does not bode well for these sorts of tariffs. Back in 1930, President Herbert Hoover signed off on the Smoot-Hawley Tariff Act. Smoot-Hawley did not cause the Great Depression because the United States was already in an economic downturn at that point. But it sure made matters worse by turning a nascent recession into a full-blown depression (e.g., Mitchener et al., 2021).

Trump seems hellbent on playing Russian Roulette with repeating a history that no one ought to repeat. What Trump would have been "liberating" Americans from with his "Liberation" Day "reciprocal" tariffs is higher wages, cheaper goods, and a better quality of life.  These tariffs will make it more difficult for the everyday American to afford food, clothing, transportation, and household goods. American manufacturers will be walloped as well because they rely and parts and inputs from other countries. Those parts and inputs are about to get a whole lot more expensive with these tariffs. 

As I pointed out last October, Trump's tariffs do not help the working class or the struggling small business. It will benefit politically connected corporations and unions. Trump's "reciprocal" tariffs are so bad that economists, think tanks, and advocacy groups that have historically been in favor of tariffs think Trump is taking it too far. The United States should not have idiotic tariff policies because other countries do. No one can tax their way to prosperity, whether it is a wealth tax or a tariff. Maybe this time, the American people will learn this lesson the hard way.

Making Tomatoes Expensive Again: How Trump's Tomato Tariffs Will Squeeze Your Wallet

From salsa and salads to ketchup and tomato sauce, tomatoes are one of the most consumed produce items in the United States. While tomatoes serve multiple culinary purposes, the U.S. tomato market is being threatened. In April, the Trump administration withdrew from a suspension agreement on fresh tomatoes from Mexico. 

With the termination of this agreement, the U.S. Department of Commerce is implementing an antidumping duty of 20.91 percent on tomato imports from Mexico that is to take effect today: July 14, 2025. DOC claims that the agreement failed to protect U.S. tomato farmers from the "unfairly priced Mexican imports." An anti-dumping duty is a type of tariff that only comes into play when there is evidence of "dumping." Dumping is when foreign companies sell goods at prices lower than what they sell for in their home market or below the cost of production. 

The U.S. government, in short, is unhappy that Mexico can and does sell tomatoes at a much lower price than U.S. farmers. As I have explained with tax policy and who pays their "fair share," it is amazing how much fairness is in the eye of the beholder. We will get into the fairness aspect in a moment. What is worth mentioning is that Mexico accounts for 90 percent of U.S. tomato imports and 61 percent of overall tomato consumption. Fruit imports account for 60 percent of the fruits consumed in the U.S., which is twice the share in comparison to what it was in the early 1980s.

What is even more undeniable is that these tariffs will increase the costs of tomatoes. Based on mainstream microeconomic theory, tariffs decrease the quantity of imports, thereby increasing prices. It is not mere economic theory. Trump's tariffs during his first term cost the average U.S. household $831 per year. Looking at the tomato market, it is no mystery why tomato prices will increase.

Mexico has a cost advantage due to lower labor costs, a longer growing season, and better climatic conditions for growing tomatoes. What the DOC does not want to recognize is that Mexico simply has a natural market relationship in which Mexican tomato farmers are better positioned to supply tomatoes than U.S. tomato farmers, especially in the winter. U.S. tomato farmers in Florida have had to plow their tomatoes because increased picking and packing costs render them unprofitable to pick. With Trump's onerous deportations on top of it, undocumented workers who would have otherwise picked the tomatoes are too scared to work, thereby increasing tomato costs further. 

The think-tank American Action Forum (AAF) estimates that these tariffs will increase the cost of tomatoes by 8 cents a pound, or about a 7 percent increase. That estimate assumes that the only cost will be U.S. consumers paying for the cost increase because a spoiler for Trump: the vast majority of the cost of his tariffs is passed on to everyday Americans. 

Due to consumer expectations and U.S. businesses wanting to avoid profit margin decay, the AAF's estimate in cost increase could increase to 15 cents, or an 11 percent increase in cost. Since Mexico accounts for 90 percent of U.S. tomato imports and 61 percent of overall tomato consumption, the United States will need to try to compensate for the shortfall in meeting demand. 

In order to do so, the United States would need anywhere between 42,000 to 250,000 additional acres dedicated to tomato production. This is upwards of six times the size of Washington, DC. However, given that the United States does not have that advantage, odds are that there will be fewer tomatoes to eat. Not only that, this will mean less economic output. A study from Texas A&M (Ribera et al., 2025) shows that Mexican tomato imports to the United States create over $8 billion in economic impact, an impact that supports approximately 47,000 jobs in the United States (see below).

Whether it is with steel, automobiles, or movies, Trump still fails to realize that tariffs are a classic instance of "cut off your nose to spite your face." Interest groups demand tariffs and they often win because the concentrated benefits are more visible than the dispersed costs on millions of consumers. 

Trump was quick to blame Biden during the presidential campaign about causing food inflation. Let there be no mistake: Biden's fiscal policy contributed to food inflation. In its supposed quest to pursue market "fairness," Trump is going to protect a few well-connected farmers. As a result, Trump will raise tomato prices for the everyday consumer while slashing economic output and destroying jobs. American consumers and Mexican farmers should not be punished simply because Mexican farmers are better at producing affordable tomatoes. Affordable tomatoes are now the latest casualty in Trump's trade war and tariff turmoil. 

Trump Telling Walmart to "Eat the Tariffs" Acknowledges That His Tariffs Ultimately Hurt the American People

President Trump's tariff tantrums continue. After weeks of duking it out with China on tariffs, Trump went on a rant about Walmart and tariffs on Truth Social. In addition to implying that Walmart makes too much, he said that Walmart should "eat the tariffs" and to "not charge valued customers anything." Forget for a moment that he implicitly threatened a business into telling it how it should handle its pricing strategy or that he peddled a right-winged version of "greedflation", the latter of which is a theory that I debunked in 2022.

By telling Walmart to eat the tariffs, he both shows a misunderstanding of the economics of tariffs and undermined his previous argument for tariffs. Throughout the 2024 presidential campaign, both Trump and Vance continued to claim that it will be other countries that will ultimately pay the cost of tariffs. It is convenient for Trump to forget that he insisted at an August 2024 campaign rally that a tariff is a tax on foreigners. Trump touted tariffs as a magic bullet in which China would bear the brunt of the costs, jobs would magically appear, and the United States would become rich again. Once again, what Trump shows is that he really does not understand how tariffs work. 

The tariffs are paid by the company to Customs and Border Protection (CBP) at a port of entry before the good can enter the United States. That's basic tariff tax collection. Since the vast majority of industries do not have the adequate net profit margin to absorb Trump's massive tax hike in the short-term, it makes sense that passing the costs to the consumer would be a logical business choice, especially since Trump's tariffs are higher and cover a broader base of goods than they did during Trump's first term. As over a dozen academic studies confirmed (also read Tax Foundation research here), the tariffs during Trump's first term were paid for by American consumers and companies. I also covered this topic last year twice (see here and here) because I was hoping that Trump would not double down on tariff tomfoolery. Yet here we are. 

When Trump says "eat the tariffs," what he is really is saying is "the costs are real and you need to suck it up, even if that means paying more." So much for making America great again! Like with any other tax, you cannot tax your way to prosperity. The costs are real. Americans pay for the tariffs in the form of higher consumer prices, lower GDP, lower wage growth, and lower employment. Trump has eroded goodwill and triggered an economic downturn that did not need to happen. The ignorance with which Trump continues with his tariff delusions will ultimately end up being at the expense of the American people and economy, not China. 

The Movie Industry Needs More Market Competition, Not Trump's Tariffs on Foreign Film Production

Lights, camera, and tariffs! On part of his tariff binge, President Trump has announced a new proposed tariff: a 100 percent tariff on any movies produced in foreign countries that come into the United States. According to Trump's post on Truth Social, the American movie industry is dying. Per Trump's argument, this has become a national security threat because other countries are offering incentives to produce movies. He then ended with "WE WANT MOVIES MADE IN AMERICA, AGAIN!" Where to begin? 

One is that the U.S. movie industry is not dying. Using the country of origin data from Internet Movie Database, blogger Stephen Fellows found that about one third of movies produced since 2000 can be classified as originating from the United States. Being the industry leader in a growing market is not exactly a coup to Hollywood.

Similar to Trump's logic on auto tariffs, Trump does not understand that supply chains in the 21st century are complex and multinational. Goods and services these days are most often a mix between domestic and foreign inputs. Films do not have a single location; they typically have multiple countries of origin. United Kingdom and Canada are the top foreign locations for U.S. studios, with 23.9 percent and 19.4 percent of films, respectively, being shot in those locations.

I would love see the Trump administration try to argue with a straight face that German rom-coms, telenovelas, Amélie, or the latest Bollywood smash hit is a national security threat. I cannot wait to read the report on that investigation!

Then there is the matter of implementing the tariff. Trump's other tariffs have been levied on goods. Movies are an entertainment service. There has not been a moment when tariffs were levied on services. At what point would the government tax the movie? At movie tickets? Would there be a tax on Amazon, Netflix, and other streaming services? Would it be paid by the studio, the producers, or distributors? Plus, how can you assess the value of the movie without knowing how popular it would be or how many views it would create? Streamed services are intangible, which means they would be governed by royalty taxes, not tariffs. Even if you tried to implement a tariff, it would require "customs officers inspecting data or monitoring IP packets at ISPs." Good luck with that!

As is the case with other tariffs, that means fewer imports. As Reason Magazine rightly points out, this would not only be a barrier to goods, but ideas. Forget for a moment that the International Emergency Economic Powers Act explicitly protects "informational materials" such as film as an exemption to regulate or prohibit under a national emergency. Opening Hollywood and other U.S. film producers to competition means greater film quality and appealing to the wide variety of tastes and preferences in film. Since tariffs constrict supply, this would also make it more difficult for domestic independent producers to access financing. This would also have an impact of variety of films. 

With increased production costs induced by the tariffs, domestic producers will most likely play it safe and take fewer risks. It would hit domestic film producers in terms of financial losses. Furthermore, Trump's tariff would translate into fewer incentives to innovate, be efficient, and satisfy customers, which makes sense because that is what happened when the United Kingdom (Cinematograph Act of 1927) and Canada implemented quota laws analogous to Trump's proposal. 

As the Foundation for Economic Education illustrates, "Great cinema is born from talent, innovation, and competition." If Trump actually wants to make the American film industry stronger, he needs to make it more competitive, not stifle it with protectionism. All Trump's film tariff will do is incentivize Hollywood producers to make derivative dribble instead of making American film great again.