President Trump has frequently pointed the finger at foreign countries for a range of issues troubling Americans. From trade imbalances and the peril of fentanyl overdoses to the financial hurdles facing blue-collar workers, his narrative often places blame beyond U.S. borders.
In this context, tariffs are painted as a remedy—a strategy to compel foreign governments to concede while also filling America’s Treasury. Yet, there lies a contradiction in these aims: if these governments enact the necessary changes and tariffs are lifted, they no longer serve as a source of revenue. Trump, however, seems undeterred by warnings about the potential fallout. Some critics even view his stance as a mere negotiating ploy rather than a genuine strategy.
Rather than seeing tariffs merely as leverage, it’s crucial to understand them as central to Trump’s broader economic agenda. His goal seems to be shifting the tax burden away from the affluent, placing it more squarely on the poor and middle class, all while solidifying his influence.
The hallmark of Trump’s initial term was the Tax Cuts and Jobs Act, which majorly slashed the corporate tax rate by 14 points and introduced temporary tax cuts that expire in 2025. If these temporary cuts are extended, most Americans would see just a minor reduction relative to existing laws. However, the benefits skew heavily towards the wealthy. According to the Tax Policy Center, the top 1% would enjoy savings exceeding $70,000 annually, which is about 3% of their after-tax earnings, whereas the median household is projected to save merely $1,000, translating to just 1% of their after-tax income.
These tax cuts offer scant rewards to the poor, who bear the brunt of tariffs—essentially a tax on imports. Poorer households tend to spend a larger proportion of their income on goods, including imports, compared to wealthier families who might save or invest more. Consequently, tariffs function as a regressive tax.
It’s incorrect to assume that tariffs target luxury items like fine wines and sports cars. The proposed tariffs predominantly impact everyday goods produced in regions like China, Canada, and Mexico along with essential materials such as steel and aluminum. What remains uncertain is the eventual tariff level, but Trump’s campaign promises included steep tariffs—a broad 20% rate, with a 60% levy on Chinese goods. This could potentially burden a typical middle-income American household with over $2,600 in additional yearly costs.
If a policy explicitly proposed raising taxes on the poorer and middle classes to subsidize tax cuts for the wealthy, it would be soundly rejected by the public. Yet, tariffs wrap this fiscal maneuver in a veil of nationalism.
There is, however, a more effective alternative to revamp the tax system and bolster domestic economic activity. Currently, U.S. tax policies incentivize companies to operationalize overseas since foreign earnings face lighter taxation compared to domestic income. Historically, U.S. corporations argued for this competitive edge to outmaneuver foreign enterprises that benefit from even lower tax rates.
In 2021, a major tax pact, championed partly by former Treasury Secretary Janet Yellen, was reached by the United States and over 130 nations. This agreement sets a minimum 15% tax on multinational earnings for companies with annual profits exceeding 750 million euros (approximately $784 million USD). This makes it increasingly challenging for large corporations to pit countries against each other to lower their tax rates, often achieving single-digit taxes.
Nevertheless, the Trump administration seems eager to unravel this agreement, which Congress hasn’t enshrined into law. This reveals a core aspect of Trump’s economic vision: rather than reviving domestic jobs or enhancing U.S. manufacturing, it’s more about enriching the already affluent. His focal point: minimizing the tax load for corporations and the wealthy, leveraging tariffs to achieve this aim.
Tariffs provide an additional advantage for Trump—they allow sweeping executive discretion as opposed to traditional taxes that require Congressional approval. While Congress technically holds the power to regulate tariffs, it has granted the executive branch notable flexibility in this domain. Presidential discretion permits Trump to favor certain industries while penalizing others.
What could possibly deter Trump from reshaping the tax system to suit his agenda? Although there’s some resistance in Congress, it’s overly optimistic to expect firm opposition from its Republican members. Legal challenges could arise, arguing that certain tariffs exceed a president’s authority.
More plausibly, and perhaps more effectively, is the potential backlash from markets and consumers. The prospect of global market disruptions due to extensive tariffs is not a welcome scenario, with most markets accounting for some tariff impacts. Additionally, consumers and voters are increasingly associating tariffs with price hikes, as two-thirds of Americans anticipate that tariffs will lead to higher costs.
Should the public begin to perceive Trump’s tariff approach as a ploy to skew the tax system in favor of the wealthy, widespread tariffs might soon lose their appeal and face significant opposition.
