The U.S. has largely been an advocate of free trade since World War II, seeking generally to knock down trade barriers over the past 75 years. Recently, President Trump's calls for increased tariffs on China, Canada, Mexico, the European Union, and other trading partners have raised concerns about a reversal of course on that long-held policy, escalating conflict that could lead to a trade war. The administration has suggested imposing levies of $50 billion to $100 billion on China, and tariffs on a smaller amount of goods with friendlier trade nations have drawn retaliatory measures from some of the U.S.'s staunchest allies.
With those big eight- and nine-figure numbers getting tossed around, you might think that tariffs have played a major role in the federal government's budget. Yet most of the reports on tariffs center on the amount of goods affected, not the actual revenue that comes in from the tariffs themselves. As the U.S. economy has grown over the decades, tariff revenue has risen at a slower pace.
How big an impact the new tariff proposals could have on these figures isn't entirely clear. For the $50 billion proposal on Chinese imported steel and aluminum, tariff rates of 10% to 25% would generate $5 billion to $12.5 billion in tariff revenue -- but only if U.S. importers actually continue to bring in those metals from China. Similarly, because tariff rates are often just a small percentage of the value of goods on which the tariffs are imposed, actual receipts tend to be relatively insignificant.
For tariffs, actual government revenue isn't important. What matters is how they affect the decision-making process of importers and exporters. Regardless of whether actual collections of tariffs increase, the impact on those who specialize in imports and exports both to and from the U.S. market will be far greater than what shows up in future tariff revenue figures.
The Motley Fool has a disclosure policy.