Former President Donald Trump has announced tax cuts that will cost trillions of dollars, the financing of which worries some of the most prominent economists.

Trump suggested sweeping tariffs on all $3 trillion worth of imports in the United States, including a 60% duty on imports from China and a 10% general duty on imports from other states.

Recently, Trump again made the case worse, saying he was considering imposing tariffs of up to 20 percent on most imports in an effort to protect working-class jobs and punish “unfair trade practices.”

In theory, the unprecedented tariff hikes could raise trillions of dollars, funds that would help cover the cost of the tax cuts. But many economists warn that those tariffs could backfire, raising prices for American families, killing jobs and sparking a global trade war.

The specific assessment is the same as that reported by Goldman Sachs in a report this week that says Trump’s economic policies — particularly on trade — would shrink America’s economy. Instead, Vice President Kamala Harris’s economic policy proposals would boost the economy, Goldman Sachs predicted.

Goldman and other experts fear that Trump’s proposed harsh trade tactics could worsen America’s affordability crisis.

“It’s one of those magical economic propositions that can actually cause inflation and put you in a recession — at the same time,” David Kelly, chief global strategist at JPMorgan Asset Management, told CNN in a phone interview.

Kelly warned that tariffs are a “perfect stagnation machine,” threatening to disrupt supply chains and prompt a punitive response from trading partners.

“It’s the mentality of a two-year-old: you punch someone in the nose and expect them not to punch you back,” he said.

“Terrible economic policy”

Trump plans to detail his economic vision for America during a major speech Thursday at the Economic Club of New York.

The speech comes as a new CNN poll finds that economic issues remain the top concern for voters, with an average of 39 percent of likely voters in six swing states citing the economy as a top issue.

Trump’s trade proposals could amount to a $3 trillion tax hike, warned Douglas Holtz-Eakin, president of the center-right think tank American Action Forum.

“It’s extremely protectionist and terrible economic policy,” said Holtz-Eakin, who served as an economic adviser to former President George W. Bush and an adviser to Sen. John McCain’s 2008 presidential campaign.

It’s hard to know whether Trump’s talk of tariffs is a negotiating ploy and whether he intends to implement those policies if re-elected, noted Mark Zandi, chief economist at Moody’s Analytics.

“But even a step in that direction is problematic. It’s a very bad idea. If there’s one thing most economists can agree on, it’s that tariffs are bad,” Zandi said.
Trump campaign spokeswoman Carolyn Levitt disputed the economists’ estimates in a statement to CNN.

“So-called economists and pundits have questioned President Trump’s economic plans in his first term. They were proven wrong then and they will be proven wrong again. President Trump successfully imposed tariffs on China in his first term and cut taxes for hard-working Americans here – and he will do so again in his second term,” Levitt said. “President Trump’s plan will result in millions of jobs and hundreds of billions of dollars returning from China to America.”

Harris’ staff accused Trump of lying to the American people about his policies.

“Donald Trump is denying this broad, bipartisan consensus, ‘hoping most economic analyzes of his positions are wrong,’ and blatantly lying to the American people about the serious costs and consequences of his economic plans,” Brian Nelson, top financial adviser to Harris.

The tariffs could cost families $2,600 a year

Trump has defended the tariffs as a way to help working-class Americans, protecting workers from unfair trade practices and as a negotiating tactic to reach more favorable trade deals. However, some experts fear the opposite will happen.

Trump’s call for a blanket 20 percent tariff combined with a 60 percent tariff on China would cost the typical middle-income household more than $2,600 a year, according to updated estimates released last month by the Peterson Institute for International Economics.

That estimate is higher than economists’ previous estimate of $1,700, which was based on 10% tariffs.

Importantly, these estimates do not factor in the impact of potential foreign retaliation, slowing economic growth or loss of competitiveness that a global trade war could cause. The real impact could be much greater.

And the costs won’t be spread evenly among families, the Peterson Institute found: Although households in all five income brackets would lose money from Trump’s tariffs and tax cuts, people with the lowest incomes would be hit the hardest.

“The losses are greatest for those at the low end of the income distribution,” researchers Kimberly Clausing and Mary Lovely wrote in a report in August. “The top 1% would net gain because losses from tariffs are more than offset by Trump’s proposed tax cuts.”

Trump’s tariffs on imported solar panels, steel and aluminum, and Chinese-made products have cost Americans more than $230 billion, according to the U.S. Customs and Border Protection.

And U.S. states that were most exposed to U.S. tariffs on imports from China saw “lower increases or even decreases” in employment and output between 2018 and 2019, according to a study by economists at the St. Louis Federal Reserve.

But tariffs on Chinese goods have become popular on both sides of the political spectrum. Notably, the Biden-Harris administration has retained most of the Trump-era tariffs. In May, President Joe Biden announced increased tariffs on $18 billion worth of Chinese goods, including electric vehicles, solar cells and computer chips.

Harris has not announced specific plans to raise or reinstate the tariffs.

The cost of the Trump tax cuts

Trump has called for an extension of the 2017 tax cuts, which expire next year unless action is taken by Congress.

Trump has argued that extending the tax cuts will stimulate the economy, create jobs and help families. But researchers from Princeton University, the University of Chicago, Harvard University and the U.S. Treasury Department found earlier this year that while the 2017 tax law boosted investment in the U.S. economy and helped moderate wage growth, tax cuts did not do the same.

In any case, extending the tax cuts would be a costly proposition.

Expanding the individual income tax provisions of the 2017 tax law alone would cost $3.4 trillion over a decade, according to estimates from independent modeler Penn Wharton. Instead, Harris’ economic plans would cost between $1.2 trillion and $1.4 trillion over a decade, according to the latest Penn Wharton model, which did not take into account the policy proposals Harris made this week.

Trump has again proposed cutting the corporate tax rate, dropping it from 21% to 20% or even 15%. The Penn Wharton model estimates a 15% cut, and the expansion of the business tax provisions of the 2017 law would pile on another $1.2 trillion in costs.

In addition to extending the tax cut, Trump also proposed eliminating taxes on Social Security benefits. That would cost $1.2 trillion over a decade, according to the Penn Wharton model.

Trump’s staff did not detail major spending cuts or tax increases to offset those tax cuts.

The Penn Wharton model does not incorporate the revenue benefits of potential tariff increases, noting that key implementation details are “missing” and warning that the consequences of a new trade war could be costly.

“While new import taxes on top of tariffs could raise several trillion dollars in new revenue over the next decade, they could also lead to revenue losses due to potential retaliation by other governments and other economic dynamics,” the report said.