WASHINGTON – President Donald Trump faces a choice ahead of a Feb. 1 target date for his tariffs to begin kicking in: revenue or revenge?
He campaigned on a blanket tariff that would generate revenue and help protect American workers. But since he was elected, Trump has toyed with country-specific tariffs as a negotiating tactic or punitive measure.
Trump has talked about using tariffs as a way to offset some of the revenue that would be lost by extending and expanding his 2017 tax cuts. He added tariffs on pharmaceuticals, computer chips and metals such as copper, steel and aluminum to his list on Monday, which he said could help pay for another tax cut for domestic manufacturers and bring industrial jobs back to the United States.
But he also has threatened to impose tariffs as a form of punishment for countries he views as uncooperative − which means forgoing the duties if they do concede to his demands. That includes tariffs on goods from China, Mexico and Canada, unless they clamp down on fentanyl trafficking and illegal immigration.
“We’re going to protect our country with tariffs,” Trump told Republican lawmakers in a speech. “If they don’t make their product in America, then very simply, they should have to pay a tariff, which will bring in trillions of dollars into our treasury,” he added, referring to foreign manufacturers.
Trump allies say he may ultimately go with some combination of the ideas he’s floating or a tariff strategy that wraps in all of the above.
“Punish our enemies, use tariffs as a bargaining chip and use tariffs as a revenue-raising measure to offset the reduction in the income taxes that we want to do,” said Stephen Moore, a senior economic adviser for Trump’s campaign and a fellow at the conservative Heritage Foundation, of the thinking inside the White House.
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Some experts say that approach could cause problems down the line. Tariffs that countries can wriggle out of through policy concessions are not a stable revenue source, and what if other nations follow through on threats to introduce retaliatory tariffs?
Tariffs that are primarily used as a negotiating tool to drive national security policy, “can be immensely effective,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.
“But if that’s how they’re used, it will undermine their positive effects on fiscal policy, because it is never clear how long they will be in place,” MacGuineas said. “If you want to offset permanent tax cuts, there’d have to be a commitment that the tariffs will be permanent, and that seems highly unlikely.”
The president could wind up with less revenue than he’s expecting and send costs soaring for Americans, experts and economists say. Even the threat of tariffs can create uncertainty in the markets, slow trade and damage America’s relationships with its allies.
“Our experiments with tariffs over the last decade have not gone great,” said Scott Lincicome, vice president of economics at the right-leaning CATO Institute.
Trump has cited trade deficits and other spending imbalances for pursuing sweeping tariffs.
The U.S. had a trade deficit of $773.4 billion in 2023, according to the U.S. Bureau of Economic Analysis. Annual data for 2024 has not been released yet.
Its largest deficits were with China, at $279.4 billion, the European Union, at $208.2 billion and Mexico at $152.4 billion. Another target of Trump’s complaints, Canada, had a trade deficit of $67.9 billion.
“China’s an abuser, but the European Union is very, very bad to us,” Trump told reporters last week. “Essentially, everybody treats us badly,” he added.
He said in remarks to the World Economic Forum later in the week that the trade deficit with Europe is immense, “And we’re going to do something about it.”
His first evening on office, Trump ordered his administration to investigate the “causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures, such as a global supplemental tariff or other policies, to remedy such deficits.”
Yet, it is taking Trump and his nascent economic team longer than he suggested to sort it out. He said as president-elect that he’d put tariffs on Canada and Mexico on his first day in office.
Trump has repeatedly said he is considering tariffs of 25% for Canada and Mexico and a hike of 10% for China. Those actions could be announced as soon as Feb. 1.
Trump said on the campaign trail that he’d put blanket tariffs of 10-20% on every nation, before shifting to a strategy during the transition of threatening them against individual countries who dared to cross him.
Trump moved over the weekend to immediately put tariffs on Colombia after the Latin American country refused to accept migrant repatriation flights. He revoked the order after the Colombian government agreed to his terms.
Peter Navarro, the senior counselor at the White House for trade and manufacturing, said in a Fox Business interview on Monday that other countries would “think twice” as a result about refusing American planes.
“This particular incident sends a signal to every other country that the president is not messing around when he says we’re deporting your exports,” Navarro said.
Trump seemed to open up a new front in his tariff agenda Monday evening as he spoke to House Republican lawmakers in Florida. He said during a speech he could put duties on specific products.
Trump previewed tariffs on computer chips, semiconductors and pharmaceuticals in the “very near” future to redirect business investment into the United States.
He said he’d also be placing tariffs on steel, aluminum, copper, and other items that are needed to support the U.S. military. “We have to bring production back to our country,” Trump said.
In an extensive riff on the subject, he said companies that make their products in America should have their taxes reduced to 15% from the 21% that his first administration and a Republican Congress adopted.
As for the universal tariffs, Trump told reporters Monday evening on Air Force One that he was currently looking at a number that was much higher than a 2.5% baseline and gradual increase that his Treasury Secretary Scott Bessent reportedly put forward.
Even before the recent shifts in Trump’s proposals, Lincicome, of the CATO Institute, said “there’s a lot of incoherence” to what Trump was putting forward.
“You can’t have a stable revenue raiser or a stable industry protector if you’re applying and removing tariffs constantly because of negotiations,” he said.
Trump allies say there are multiple reasons to use tariffs, and maximizing leverage and raising revenue are not mutually exclusive.
A century ago, the primary way the federal government made its money was through tariffs, former Trump national security adviser Robert O’Brien argued. “So there’s a lot of revenue to be had there for the federal government.”
“I think the tariffs will also incentivize American companies to come home, and partner countries that have great corporations like South Korea, Japan, and Switzerland, and other big countries that have well-developed economies and big companies that make a lot of money selling into America, to move their manufacturing of those products that they sell here to the United States,” O’Brien said.
He predicted Trump would implement a universal tariff, from which he could exempt certain countries who do what he’s asking them to before or after the deadline.
“If you do a blanket, then every country’s going to be knocking on your door to try to figure out how to get out from under the blanket. So the leverage is still there,” he said. “I don’t think it diminishes your leverage.”
Trump put tariffs on steel and aluminum imports in his first term. He also went after imported washing machines and solar panels. He targeted China for tariffs in particular. Beijing responded by putting duties on the United States. So did India.
Initially, he left Canada, Mexico and the European Union off his steel and aluminum tariff list before adding them later that same year. The dispute with Canada and Mexico was eventually solved by the ratification of a three-way trade agreement and after a long back-and-forth.
Retaliatory tariffs were put into place by the EU and then paused under an agreement with the Biden administration. The suspension lasts through the end of March.
“Are you sure that everybody will just go on and kind of continue without reacting? And as we saw from the previous time, countries, and EU as well, stood their ground,” EU Ambassador Jovita Neliupšienė said in an interview, referring to what happened after Trump introduced tariffs in his first term. “We really have our own trade defense instruments, and we used (them) last time.”
Canada, China and Mexico have also signaled they would respond to tariffs with trade actions of their own.
If the idea is to balance trade, Neliupšienė told USA TODAY, there are measures Europe can discuss with the Trump administration. “And we are ready for that.”
“If, you know, the question is about revenues and closing the budget gaps, it will not necessarily be as effective as people believe,” she said. “It actually can be really quite counterproductive, as it was last time, because a lot of goods were targeted, and (the) federal government had to step in and compensate some losses for some sectors.”
She suggested that higher imports by Europe of liquefied natural gas from the United States could be an area of discussion.
Democratic lawmakers in the U.S. have accused Trump of effectively pursuing a national sales tax that will increase the cost of living.
“These sweeping tariffs would raise prices, threaten jobs and harm our economy,” Rep. Suzan DelBene, D-Wash., told reporters during a January call, during which she introduced legislation that, if passed, would restrict Trump’s ability to unilaterally impose tariffs.
“Our allies and adversaries alike won’t take these tariffs lying down,” DelBene said. “They’ll retaliate against U.S. businesses and workers like they have in the past.”
After Trump implemented tariffs in his first term, India closed its markets to American apples, which harmed farmers in her home state of Washington, she said. She warned that Canadians were already developing a list of items that they would target.
“This is the textbook definition of a trade war,” DelBene said.
Trump advisers have disputed claims that the proposed tariffs would spike prices, noting that inflation remained low during Trump’s first term.
But even with Trump at the helm, not all types of tariffs are universally supported by Republicans.
Texas Rep. Michael McCaul, a former chairman of the House Homeland Security Committee, said in an interview just before Trump returned to office, “If the tariffs are used as a sort of tool to effectuate better policy and behavior, then I’m all for them.”
However, when it comes to putting duties on semiconductors, he said, Congress already incentivized production in the U.S. through the bipartisan CHIPS and Science Act.
The downside of putting across the board tariffs in place, McCaul added, is consumer prices could increase. “And I don’t think the American people are going like that, when all of a sudden prices go up on everything.”
Trump has said he could tariff and sanction Russia to get the country to settle its war against Ukraine. Moore, an outside economic adviser to Trump, suggested new tariffs could also be on the way for Iran.
Yet, even Moore said he disagreed with protectionist-style tariffs on individual products like the ones on imported steel that Trump put into place in his first term. They didn’t help much Moore, an economist said, because the price of steel went up.
“I’m just not a big fan of those. I hope he doesn’t go in that direction … I’d much prefer a universal low-rate tariff,” Moore said.
