Trump's tariff plan would raise $2 trillion or more and reduce deficit, watchdog says

The Republican presidential frontrunner, and former president Donald Trump, has suggested a tariff plan that could generate approximately $2 trillion to $2.5 trillion in revenue and lead to a reduction in the deficit, as per an analysis by a fiscal responsibility watchdog group. Trump's proposal entails a basic 10% tariff on all imports to the United States.

As of the current fiscal year, FY2023, the deficit stands at $1.6 trillion.

The Committee for a Responsible Federal Budget's analysis predicts that this policy could potentially yield around $2.5 trillion from FY 2026 to 2035 under conventional scoring. However, it is anticipated that the tariff might dampen economic growth, although the Trump campaign disputes this claim, which could reduce the revenue gains to approximately $2 trillion.

Depending on whether these economic effects are considered, the policy is projected to reduce the debt as a percentage of Gross Domestic Product (GDP) by 4 to 7 percentage points in FY 2035, according to the CRFB's estimates.

The organization emphasizes that their analysis solely focuses on the proposed universal baseline tariff, assuming it takes the form of a minimum 10% tariff applied to all imported goods.

CRFB highlights that implementing a tariff on nearly all imported goods would mark a significant deviation from the existing law, where most imports are exempt from customs duties.

The organization also notes that tariff revenue collected by the U.S. government has risen since Trump assumed office. Trump placed trade policy at the forefront of his 2016 presidential campaign.

Before Trump's first term, the U.S. collected approximately $30 billion annually from tariffs on roughly 25% of all imported goods. Presently, tariffs generate about $100 billion annually from 30% of goods, according to the watchdog group's analysis.

Trump initially introduced this idea in August, receiving swift negative reactions from various quarters. Economists from both political parties expressed grave concerns, with Adam Posen, president of the Peterson Institute for International Economics, referring to the proposal as "lunacy" and "horrifying." Posen asserted that it would erode trust in the United States as a trading partner among major world economies. Although aimed at boosting domestic production, a 10% tariff would negatively impact thousands of U.S. companies reliant on imports and exports, Posen argued.

Simultaneously, a bipartisan majority of Americans expressed support for more tariffs on Chinese goods in an August Reuters/Ipsos survey.

The watchdog group estimates that with a 10% universal baseline tariff applied to all imports, annual tariff revenue could range from $350 billion to $450 billion. In essence, annual customs revenue would experience more than a fourfold increase between 2025 and 2035 under this proposal.

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