[E]conomists generally agree that trade wars harm long-term economic growth by limiting consumer options, raising costs, reducing investment capital and killing jobs in industries that suffer from foreign retaliation. This slowdown in the growth of businesses, jobs and wages in turn means less income for Washington to tax. If annual economic growth rates decline by 0.5 percent of gross domestic product — an admittedly aggressive assumption based on past trade wars — that would cost Washington $1.8 trillion in 10-year revenue.
And even if some net tariff revenue survives, Congress and the White House will likely spend some of it bailing out industries hit with retaliatory tariffs. During Trump’s first term, as much as 92 percent of tariff revenue on Chinese goods was spent bailing out farmers who lost access to export markets.
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With a long-term contraction of the tariff tax base, revenue lost to slower economic growth and likely bailouts of industries harmed by retaliation, the new tariffs are unlikely to notably reduce Washington’s exorbitant budget deficits. Current estimates by the Tax Foundation, which account for slower economic growth and foreign retaliation, suggest $1.6 trillion in net 10-year revenue. If half of that revenue is then spent on industry bailout as well as higher unemployment and safety net costs, the remaining $800 billion in net savings would close less than 3 percent of the projected 10 -year budget deficits.
And yet, future presidents and congresses may face resistance to repeal the tariffs because the Congressional Budget Office will likely exaggerate tariff revenue. This is because congressional rules typically forbid the CBO from accounting for the revenue lost to a bill’s reduction in economic growth when scoring bills. And those who point to rising tariff revenue in the federal budget tables may not notice the corresponding weakness of income, payroll and corporate tax revenue