The New York Times’ Jim Tankersley explains how Trump's tariffs erase the benefits of the current tax cuts. In particular, Tankersley finds that the benefits of Trump's tax cuts to the lower and middle classes will likely unwind as a result of his tariffs on goods from China, Mexico, and Europe.
Tankersley cites the Penn Wharton Budget Model (PWBM) alongside a recent report from the Tax Foundation. The report points out that tariffs generate a significant tax increase for Americans by increasing the prices of goods. In prior research, PWBM showed that an all-out trade war would reduce GDP. In fact, as shown in Figure 1, the effect of the tax cuts is wiped out by al all-out trade war. PWBM estimates that these tariffs would hurt the middle class.
Richard Prisinzano, a PWBM senior economist, explains that the tariffs would hurt consumers but to what extent is unknown. Understanding the impact of Trump’s tariffs is key to understanding our economy and the budget.
Figure 1: Effects of the Tax Cuts and Jobs Act and an All-Out Trade War on GDP