How Trump and Harris’ Competing Tax Plans Could Affect American Workers

Tariffs are costs imposed on goods imported from other countries, but how effective are they and at what point do they start to hurt the economy?

The issue has now become the focus of the opposing positions of the two candidates for president of the United States. While Vice President Kamala Harris is proposing a mix of tax cuts for middle-class Americans and tax increases for the wealthy to support growth and reduce the deficit, former President Donald Trump is proposing something more innovative: using massive tariffs to protect American industries and raise revenue.

During Tuesday night’s presidential debate, Trump reiterated his commitment to his plan, which would impose a 10% tariff on all imported goods and a 60% tariff on goods imported from China.

“Other countries are finally, after 75 years, going to pay us back for everything we’ve done for the world, and the tariffs are going to be substantial,” said Mr. Trump, the Republican nominee, adding that his proposed 10 percent tariff would raise “hundreds of billions of dollars.”

Harris, the Democratic candidate, responded that the tariffs are actually a “sales tax” on American households.

In fact, the Biden administration recently imposed its own round of tariffs, while extending those first imposed under the Trump administration. Harris has not explicitly said whether she will extend them, but on her campaign website she said she would continue to “support American leadership in semiconductors, clean energy, AI, and other cutting-edge industries of the future,” while addressing “unfair trade practices by China or any competitor that harm American workers.”

The fight against tariffs, while perhaps lopsided, is central to understanding the candidates’ economic visions — not to mention how third parties have assessed each plan’s potential.

According to an estimate by the Tax Foundation, a pro-business organization, Trump’s taxes could generate as much as $2.5 trillion over a decade. However, the group calculates that those revenues would barely cover half of the tax cuts and spending proposals that Trump has also put forward.

At the same time, most of Harris’ economic plan’s projections show a more balanced outcome between U.S. revenue increases, tax cuts and spending plans.

Tariffs ultimately involve tradeoffs. The cost of tariffs is never mentioned on retailers’ receipts, but many economists believe that consumers end up paying higher prices when tariffs are imposed because companies that pay the bill up front end up passing the cost on to their customers.

But tariffs can also support, or even expand, employment in the United States.

Consider the Trump administration’s 2018 tariffs on washing machines. According to the Coalition for a Prosperous America, a bipartisan group that advocates for tougher foreign trade policies, the washing machine tariffs created more than 2,000 jobs and spurred growth in the two southern communities where Korean appliance makers ended up building factories to circumvent the tariffs.

But a university study found that the cost of those jobs was about $815,000 per position, while laundry equipment prices were rising by up to 10 percent.

The washing machine tariffs were part of a broader new tariff regime imposed by Trump aimed at protecting American workers from anti-competitive Chinese trade practices. It has led to what is widely considered a “trade war” involving retaliatory tariffs on American goods.

The “war” has somewhat eased following the pandemic.

But this spring, when the Biden administration adopted its own round of tariffs, some of them were continuations of those imposed by Trump. For example, in May, Biden announced a new round of tariffs on a host of products, including steel and aluminum, as well as semiconductors, electric vehicles, batteries and solar panel parts.

The White House used a similar rationale to the Trump administration when it announced its tariffs.

“American workers and businesses can outperform anyone, provided they have fair competition,” Biden said in a statement. “But for too long, the Chinese government has engaged in unfair, untrade practices.”

Most economists agree that tariffs can support domestic industry. But they can also end up imposing higher costs on the economy as a whole.

In a 2018 interview with the pro-business American Enterprise Institute, Douglas Irwin, considered one of America’s most distinguished business historians, expressed this dilemma.

“There’s no denying that some workers in some sectors have been negatively affected by increased foreign competition,” he said, “but when you talk about the productivity improvements that come from trade, the jobs that come from exports and the benefits to consumers, I would say that overall, America is better off.”

“But,” Irwin continued, “there is no denying that some groups have potentially been made more disadvantaged because of” the lack of protection.

Assessing the economic impact of tariffs often relies on assumptions and calculations that can produce wildly divergent results. The Committee for a Responsible Federal Budget, a nonpartisan group, wrote that Trump’s proposal to impose 60% tariffs on China “would generate up to $300 billion in net revenue over a decade or result in up to $50 billion in losses … depending on the share of Chinese imports replaced by domestic or foreign products.”

The committee said the revenue-raising aspect of Trump’s proposal, amounting to $2.5 trillion over 10 years, would have “a substantial budgetary impact and would significantly slow the growth of the national debt.”

But the group added that this could have “substantial economic effects” such as reduced purchasing power and increased trade uncertainty.

Free trade advocates favor directly negotiating terms with other countries — but even then, countries with which the United States has friendly agreements have been accused of violating those agreements. Mexico has come under fire for allegedly violating a joint steel deal signed by Trump in 2019, leading to the closure of steel plants across the United States, including in Ohio, New York and, most recently, on Chicago’s southwest side.

“Ohio steelworkers can no longer wait for Mexico’s cheating to stop,” Ohio Democratic Sen. Sherrod Brown said in March, along with Arkansas Republican Sen. Tom Cotton. “Workers are losing jobs and Ohio companies are losing business. When Mexico breaks the rules it agreed to, the administration must hold it accountable.”

Officials at the companies responsible for the plant closures have cited inflationary pressures in the United States as the reason for the shutdowns. The fight over the future of U.S. Steel, whose proposed acquisition by a Japanese conglomerate now faces possible blockage by the Biden administration, is also tied to broader economic forces that have long destabilized American manufacturing.

Nick Iacovella, senior vice president of public affairs at the Coalition for a Prosperous America, a trade group that advocates for tariffs, said opposition to tariffs often wrongly assumes that domestic production can’t be improved.

He said special interest groups are often keen to point to reports showing that tariffs don’t work as a way to justify having “spent the last two or three decades moving production and jobs to countries with cheaper labor and lower environmental standards.”

“Many working-class Americans are suffering from the outsourcing of production and China’s unfair and illegal trade,” Iacovella said. “Our communities are being hollowed out, particularly because of free trade agreements.”

But for every job protected by tariffs, there is often another domestic industry that stands to lose jobs. According to economists at Harvard University and the University of California, Davis, Trump’s steel tariffs have ultimately hurt companies that use steel as an “input” to produce finished products, such as automakers and equipment suppliers.

“The job losses created by the jeopardy of these steel-using industries appear to be substantial and far greater than any jobs that might have emerged in the steel-producing industry as a result of the tariffs,” they wrote in a 2020 report.