President Donald Trump’s new tariffs on China and threatened tariffs on Mexico and Canada could potentially result in the largest tax increase in over a generation, as reported by the Peterson Institute for International Economics. The 10% tariff hike on Chinese goods went into effect recently, while the 25% tariffs on Mexico and Canada have been postponed until early March, with uncertainty surrounding their implementation.
If all three tariffs are imposed, the direct impact on the average American household could amount to a tax increase of more than $1,200 annually, according to researchers at the Peterson Institute. This would mark the most substantial tax hike in the United States since at least 1993.
The potential financial burden on consumers may be exacerbated by retaliatory measures from other countries, such as China’s announcement of counter-tariffs, and possible price escalations by American producers. Despite President Trump’s pledge to extend the 2017 tax cuts, which are set to expire by the year-end, the Peterson Institute's analysis indicates that even with the extension, the bottom 60% of earners would face significant negative impacts due to the tariffs.
The researchers at the Peterson Institute, Kimberly Clausing, and Mary Lovely, highlighted that the tax cuts alone would not be sufficient to offset the adverse effects of the tariffs on most households. Only households in the top fifth of the income distribution are projected to benefit from the combined impact of the tax changes.
