Ed Gresser, Vice President and Director for Trade and Global Markets at the Progressive Policy Institute, published his trade fact of the week, examining various countries’ reliance on tariffs as a share of government revenue. Tariffs currently make up 1.8% of the U.S. government’s revenue. The Trump/Vance proposal would bring that up to approximately 25.6%.
No “developed” country now uses tariffs for more than 2.7% of revenue; World Bank tables find Gambia, whose government gets 41.6% of its money from tariffs, the most tariff-reliant country in the world. At 25.6%, the U.S. would be below Gambia, but in the neighborhood of tariff-heavy jurisdictions such as Somalia, the Bahamas, pre-war West Bank and Gaza, Nepal, and Ethiopia — that is, countries too small, politically disordered, and/or poor to operate professional bureaucracies able to assess and collect revenue from broader sources such as income, wealth, or consumption.
Gresser references PPI’s newest paper, It’s Not 1789 Anymore: Why Trump’s Tariff Agenda Would Hurt America by Fiscal Policy Analyst Laura Duffy, which examines why James Madison and Alexander Hamilton did not choose tariffs as the “main early-republic and 19th-century revenue source” and the problems the Trump/Vance proposal would run into. Duffy closes the paper with this observation:
Replacing tariffs with direct taxes on incomes was also a huge step in making American public finance more rational and equitable. … Returning to tariff-heavy policies, as suggested by Trump, would be fiscally irresponsible and counterproductive. Beyond their revenue-generating limitations, tariffs are extremely susceptible to lobbying from protected industries at the expense of other businesses, workers, and consumers. Finally, the distortionary effects of returning to pre-modern tariff rates would be extremely damaging to the American economy and undermine the strong wage and job gains the country has seen in the past three years.