Donald Trump’s tariff rates, ranging from 10 to 41 percent on goods from more than 90 countries, took effect after midnight on Thursday.
His move to reignite his trade war, particularly against Canada, Mexico, and China, will result in a 2.7% reduction in income for the bottom 20% of earners, while the top 1% will lose 0.6%.
The Yale Budget Lab estimates that the overall price level resulting from all tariffs enacted in 2025 will lead to an average household income loss of $2,400 in 2025 dollars. Other analyses project even higher costs, with some estimating a $3,800 annual loss per household from consumer price increases tied to all 2025 tariffs.
While US tariff revenues have risen significantly, they still constitute a small portion of the federal budget deficit. The projected fiscal year 2025 federal budget deficit is $1.9 trillion. The increased tariff revenue, even with recent increases, amounts to roughly 7% of that figure.
Such a minor increase in revenue puts to rest Trump‘s idea of entirely replacing the federal income tax with new tariffs.
To replace the roughly $2 trillion of revenue raised by the individual income tax with tariffs would require astronomically high tariff rates.
Raising tariff rates to astronomically high levels would significantly depress imports, making it impossible to generate enough revenue to offset the costs of Trump’s tariff rates fully.