Fact Check: tariffs make more money than free trade

Tariffs Make More Money Than Free Trade: A Detailed Examination

Introduction

The claim that "tariffs make more money than free trade" suggests that imposing tariffs on imported goods generates greater revenue for governments compared to the economic benefits derived from free trade. This assertion invites scrutiny, particularly in light of the complex economic dynamics involved in trade policy.

What We Know

1. Definition and Purpose of Tariffs: Tariffs are taxes levied on imported goods, primarily intended to protect domestic industries, generate government revenue, and influence trade balances. Historically, tariffs accounted for a significant portion of government revenue, but their contribution has diminished to about 1% of total tax revenue in recent years 6.

2. Revenue Generation: According to a report from the Budget Lab at Yale, tariffs could raise between $1.4 to $1.5 trillion from 2026 to 2035, depending on various economic factors 3. This revenue is generated through the increased prices of imported goods, which consumers ultimately pay.

3. Economic Impact: While tariffs can provide immediate revenue benefits, they also have broader economic implications. Higher prices for imported goods can reduce consumer purchasing power and lead to retaliatory tariffs from other countries, which may decrease exports and harm domestic industries reliant on international markets 15.

4. Mixed Effects on GDP: Economists generally agree that while tariffs can increase government revenue, they may also negatively impact GDP due to reduced consumer spending and potential trade wars. The Brookings Institution notes that the overall economic impact of tariffs is mixed, with some arguing that free trade tends to promote higher GDP growth in the long run 1.

5. Distributional Effects: The economic burden of tariffs is not evenly distributed. While certain domestic industries may benefit from protectionist measures, consumers face higher prices, and low-income households are disproportionately affected 24.

Analysis

The claim that tariffs generate more revenue than free trade is supported by some economic models and analyses, yet it is essential to critically evaluate the sources and methodologies behind these claims.

• Source Credibility: The Budget Lab at Yale, which provides detailed analyses of tariff impacts, employs the Global Trade Analysis Project (GTAP) model to forecast trade-flow changes. This model is widely respected in economic circles, but it relies on assumptions that may not hold true in all scenarios, such as the elasticity of demand for imported goods 2.

• Potential Bias: Some sources may exhibit bias based on their affiliations or the political context in which they operate. For instance, reports from institutions with strong ties to specific political agendas may emphasize the benefits of tariffs while downplaying their negative consequences 410.

• Methodological Concerns: The methodologies used to assess the economic impact of tariffs can vary significantly. For example, dynamic revenue effects, which consider how tariffs might influence economic growth and consumer behavior over time, can lead to different conclusions compared to static analyses that focus solely on immediate revenue generation 37.

• Contradicting Views: Other analyses suggest that free trade generally leads to more significant economic benefits over time, including increased efficiency, lower prices for consumers, and enhanced innovation 15. This perspective argues that while tariffs may provide short-term revenue, they can hinder long-term economic growth.

Conclusion

Verdict: Unverified

The assertion that "tariffs make more money than free trade" remains unverified due to conflicting evidence and the complexity of economic impacts. While some analyses indicate that tariffs could generate substantial revenue for governments, this potential is counterbalanced by negative effects on consumer prices, economic growth, and international trade relations. The mixed economic outcomes associated with tariffs suggest that their revenue-generating capabilities may not outweigh the broader economic costs.

It is important to recognize that the evidence supporting the revenue-generating potential of tariffs is based on models that rely on specific assumptions, which may not universally apply. Additionally, the potential biases in the sources and the varying methodologies used to assess the impacts of tariffs further complicate the evaluation of this claim.

Given these uncertainties, readers are encouraged to critically evaluate the information presented and consider the broader economic context when forming their own conclusions about the implications of tariffs versus free trade.

Sources

1. Brookings Institution. "What are tariffs, and why are they rising?" Brookings
2. Yale Budget Lab. "The Fiscal, Economic, and Distributional Effects of Illustrative 'Reciprocal' U.S. Tariffs." Yale Budget Lab
3. Yale Budget Lab. "The Fiscal, Economic, and Distributional Effects of 20% Tariffs." Yale Budget Lab
4. Darden Report. "Q&A: What Are Tariffs and How Will They Affect Us?" Darden Report
5. USC Dornsife. "Tariffs: What are they, who pays for them and who do they benefit?" USC Dornsife
6. NC State CALS. "The Economics of Tariffs." NC State CALS
7. Yale Budget Lab. "Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios." Yale Budget Lab
8. U.S. Bureau of Labor Statistics. "The effects of tariff rates on the U.S. economy: what the Producer Price Index tells us." BLS
9. The New York Times. "'Reciprocal' Tariffs: See Which Countries Have the Highest Rates." NYT
10. BBC News. "What are tariffs, why is Trump using them, and will prices rise?" BBC