The US revenue implications of President Trump's 2025 tariffs

Warwick McKibbin and Geoffrey Shuetrim

No PIIEB25-2 in PIIE Briefings from Peterson Institute for International Economics

Abstract: President Donald J. Trump's new tariffs could generate trillions of dollars in new federal government revenue over a decade, but the net gain would be reduced by the measures' damaging effects on the US economy and the other economies' likely retaliation. This PIIE Briefing uses a global economic model to assess the effects of US tariff increases of 10, 15, or 20 percentage points on all imported goods. The authors evaluate how the effects would differ depending on whether other economies do or do not retaliate by imposing the same tariffs on imported US goods. --A 15 percentage point increase in universal US tariffs would generate $3.9 trillion in federal government revenue over a decade (2025-34) before accounting for its impact on the US economy and assuming no foreign retaliation. That total would be partially offset by lower tax revenue than otherwise from households and companies due to the tariffs' economic impacts—including slower US growth and lower production, employment, and real wages. After accounting for those offsets, the net revenue gain would be $3.2 trillion over a decade. That net revenue gain would shrink further to $1.5 trillion if other economies retaliate. --A lower 10 percentage point tariff increase, combined with the economic effects and foreign retaliation, would generate a net revenue gain of $1.6 trillion. Higher tariffs do not necessarily yield more revenue. --Of these scenarios, the net gain would be lowest, $791 billion, under a 20 percentage point tariff increase, combined with the economic effects and foreign retaliation. --Under each of these three tariff rate scenarios, the United States would see lower GDP, investment, employment, and real wages over the following decade than otherwise--i.e., than without the tariff increases--and higher inflation over the initial two years. --The US sectors hit hardest would be agriculture, mining, and manufacturing because of their relatively high reliance on foreign demand for their exports. The harm would be amplified by retaliation from trading partners. The Peterson Institute for International Economics has no partisan goal in publishing this research. Our objective is to educate policymakers and the public about the effects these policies would have on Americans and other people around the world.

Date: Written 2025-04
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