Trump’s Tariffs Will Be Worse Than Biden’s Inflation (Video)

Anyone feeling the price shock of inflation under a Joe Biden presidency should be concerned about what could happen if Donald Trump becomes the next president: import tariffs that could be even more severe.

Trump wants to impose new tariffs of 20% on most imports, with a 60% tariff on products from China. This is in addition to the more modest tariffs Trump has already imposed during his presidency. Americans buy $3.8 billion worth of imported goods a year, more than any other country. That’s almost as much as Americans spend on health care, and you’ll never hear a presidential candidate promising to raise health care costs by adding new taxes.

Trump says tariffs are not taxes. He is wrong, and it is not a matter of interpretation. Tariffs are duties paid by American importers. The Treasury Department reports tariff revenues just as it reports income and corporate tax revenues. The government’s tariff revenues doubled from $38 billion in 2017 to $77 billion in 2019, after Trump’s first set of tariffs went into effect.

Just before COVID hit in 2020, the Congressional Budget Office (CBO) estimated that Trump’s tariffs would raise prices by 0.5%, reduce GDP by 0.5%, and cost the average household $1,277 through higher prices and slower economic growth. The COVID pandemic, combined with an unprecedented amount of government stimulus, has distorted the economy and made such projections difficult to verify.

But Trump’s tariffs likely contributed to rising inflation under Biden, with inflation peaking at 9% in 2022. Biden has repealed Trump’s tariffs on allied countries but kept the tariffs on China in place. That adds a tax of 7.5% to 25% on about $280 billion worth of imports annually, according to the American Action Forum. Federal tariff revenues are still twice as high as they were before COVID.

Trump’s new round of tariffs will cost the average household an extra $2,600 a year in higher costs and slower growth, according to the Peterson Institute for International Economics. It will likely be a bigger hit to American wallets than the inflation it has caused since Biden took office.

The average household spent $66,928 in 2021, Biden’s first year in office. Since January 2021, the overall price level has risen 19.7%, while incomes have risen 17.6%. So inflation has outpaced incomes by 2.1 percentage points over that time. This erosion of purchasing power is the “cost” of inflation.

If average spending rose 19.7% from 2021 while incomes rose only 17.6%, the cost of inflation was a loss of purchasing power of $1,405. That covers a three-year period, so divide by three and you get $468 per year in additional costs. That may seem suspiciously low for large families with multiple mouths to feed and rising rents. But it also includes smaller households that can replace more expensive goods, as well as millions of homeowners whose housing costs fell after refinancing their mortgages at record-low interest rates in 2020 and 2021.

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In any case, $468 a year, or even two or three times that, is far less than the $2,600 a year that Trump’s tariffs would amount to.

Other estimates of the cost of inflation under Biden are dramatically higher — and highly suspect. Trump says inflation has cost the typical family $28,000 since 2021. If true, that would be nearly five times what the typical family spends on groceries each year. Inflation has been painful, but this is no Zimbabwe.

Trump’s data appears to come from Republican congressmen who use an unorthodox methodology that compares actual inflation to a hypothetical scenario where there is zero inflation, which almost never happens. If average household spending rose by $28,000 from 2021, that would mean inflation since then of 42%, more than twice the actual rate. Fact-checking sites have debunked Trump’s claim.

Whatever the price on inflation, why make matters worse by imposing new taxes when prices are returning to normal? Trump argues that tariffs would benefit the economy by boosting domestic production, even though studies of his first round of tariffs show they killed jobs, a net loss, while raising business costs and hurting profits.

Trump supporters may support his tariffs for other reasons. One is that they never saw any harm from Trump’s first set of tariffs, which were carefully imposed on intermediate goods that go into other products rather than finished products that go directly to consumers. Prices rose through the supply chain, but producers couldn’t pass on all of that to buyers.

There was also a big shift of imports from China to proxy countries like Vietnam and India, which weren’t subject to the new tariffs, so many imports simply bypassed China’s tariffs. Then came the COVID-era stimulus payments, which put free money in people’s pockets and led to an increase in demand for goods. As inflation rose well above normal levels, people bought things anyway because they had the money. If Trump’s tariffs were helping to raise prices, the government’s stimulus money was a compensation.

There will be no more stimulus to numb the pain of Trump’s additional tariffs. And his new plan for universal tariffs won’t leave the escape hatches that his first set of tariffs did. Voters who think they were okay with the first round of Trump tariffs may need to reevaluate when the second round comes around.

Rick Newman is a senior columnist Yahoo Finance. Follow him on X on @rickjnewman.

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