Estimating the revenue raised by tariffs is not as straightforward as multiplying the amount of imports by the applicable tariff rate.
Tariffs are taxes imposed by one country on goods imported from another country.
They are trade barriers that raise prices, reduce available quantities of goods and services for U.S. businesses and consumers, and create an economic burden on foreign exporters.
Direct tariff revenue is lowered by behavioral, offset, and dynamic economic effects.
Further, the revenue is subject to high levels of political uncertainty given the potential for legal and congressional challenges to the authorities the U.S. executive branch has used to impose tariffs.
Revenue is only raised when the tariffs are in effect; if the tariffs are lifted due to negotiations, legal challenges, or congressional action, then revenue will cease.
Tax Foundation estimates a 10 percent universal tariff would raise $2.2 trillion over the 2025 through 2034 budget window on a conventional basis (0.6 percent of GDP).
A 15 percent universal tariff would raise $2.9 trillion (0.8 percent of GDP), and a 20 percent universal tariff would raise $3.4 trillion (0.9 percent of GDP).
Using Tax Foundation’s General Equilibrium Model to simulate the macroeconomic impact of tariffs, a 10 percent universal tariff would reduce GDP by 0.4 percent, a 15 percent universal tariff would reduce GDP by 0.6 percent, and a 20 percent universal tariff would reduce GDP by 0.8 percent.
Incorporating the revenue feedback from the negative macroeconomic effects, smaller revenue gains are estimated over the 10-year budget window: $1.7 trillion from the 10 percent tariff, $2.2 trillion from the 15 percent tariff, and $2.6 trillion from the 20 percent tariff.
U.S.-imposed tariffs will also invite foreign retaliation, which will reduce U.S. output and incomes.
Retaliation will create negative revenue feedback but will not generate any additional revenue for the U.S. government.
In-kind retaliation to 10 percent universal tariffs is estimated to reduce federal tax revenue by $278 billion, by $401 billion for a 15 percent tariff, and by $517 billion for a 20 percent tariff.
Prior to President Trump’s new actions, tariff revenues were on track to comprise less than 1.6 percent of federal tax revenue in fiscal year 2025.
Given the Trump administration’s actions so far in 2025, that figure is expected to change.
His trade policies threaten the highest tariffs in decades.
But how much revenue could really be raised by new tariffs?
Could tariffs function as a major source of revenue for a modern, developed economy in the 21st century?
To answer this question, a review of the Tax Foundation’s methodology for constructing a conventional revenue estimate begins.
This illustrates how a standard approach that accounts for behavioral effects and offsets reduces the direct revenue raised by tariffs.
The discussion then moves to the Tax Foundation’s approach to estimating the macroeconomic impact of higher tariffs.
Finally, a dynamic revenue estimate will be provided, and additional considerations that may impact revenue raised by tariffs, including foreign retaliation, will be addressed.
A conventional revenue estimate holds nominal income in the economy constant but incorporates behavioral effects consistent with a fixed nominal income assumption.
Thus, a conventional revenue estimate for higher tariffs will not incorporate how tariffs would reduce the size of the U.S. economy but will include other behavioral effects.
Tax Foundation’s tariff revenue estimates reflect how imports will fall in response to tariffs and how higher tariff payments mechanically reduce the bases of the income and payroll taxes.
Tariffs, like any other type of tax, are also subject to avoidance and evasion.
To construct a pre-tariff baseline of imports, 2024 goods imports from the United States International Trade Commission (USITC) DataWeb are used, assuming goods imports will grow by the total import growth rates the Congressional Budget Office (CBO) predicts over the 10-year budget window.
In response to a new tariff, however, baseline imports will not remain at their pre-tariff levels.
The relative price increase in imports will cause a drop in imports as people substitute away from higher-priced tariffed goods toward non-tariffed alternatives, and in cases of non-uniform tariffs, trade may be diverted through countries not subject to the tariffs.
A study of 183 economies from 1995 through 2018 found an elasticity of -0.76 the year following an exogenous tariff change that converged to -1.75 to -2.25 within 7 to 10 years.
Another study of 167 countries across 5,124 products at the six-digit level of the Harmonized System from 1996 to 2014 found a simple average elasticity of -1.7 for the United States and a binding, weighted-average elasticity of -0.997.
The elasticities in these studies demonstrate the change in trade flows in response to changes in import prices and illustrate that it is unrealistic to expect imports to remain the same after a tariff causes import prices to rise.
Recent experience from the 2018-2019 trade war confirms the responsiveness of U.S. imports to higher tariffs.
Amiti et al. found that among the goods that continued to be imported, a 10 percent tariff was associated with a 10 percent drop in imports over the first three months and a 20 percent drop over the following months.
The U.S. International Trade Commission (USITC) found an elasticity close to -1 in the first few months of the tariffs that rose to more than -2 near the end of the second year.
Tariffs also suffer from noncompliance.
The overall tax gap in the U.S. accounts for at least $1 billion in lost revenue each year, according to the latest estimate by the IRS, suggesting a voluntary taxpayer compliance rate of 83.6 percent.
To estimate the impact on U.S. imports of a universal tariff over the 10-year budget window, an elasticity of -0.997 and an additional noncompliance rate of 8 percent is used.
In 2025, the tax base for universal tariffs falls from $3.3 trillion to $2.7 trillion for a 10 percent tariff, $2.6 trillion for a 15 percent tariff, and $2.3 trillion for a 20 percent tariff.
To calculate the direct revenue effect of higher tariffs, the adjusted tax base is multiplied by the inclusive tax rate (figured as the stated tax rate divided by one plus the stated tax rate).
The direct revenue raised by the tariffs will be offset by reductions in income and payroll taxes.
As tariffs reduce the amount of income firms have to compensate factors of production, the tax bases of the corporate income tax, individual income tax, and payroll tax shrink, offsetting some of the revenue raised from increasing tariffs.
Using Tax Foundation’s tax calculator, income and payroll tax offsets average 26.6 percent over the next decade.
After adjustments for the decline in imports, noncompliance, and income and payroll tax offsets, it is estimated that a 10 percent universal tariff would raise $2.2 trillion over the 2025 through 2034 budget window on a conventional basis (0.6 percent of GDP).
A 15 percent universal tariff would raise $2.9 trillion (0.8 percent of GDP), and a 20 percent universal tariff would raise $3.4 trillion (0.9 percent of GDP).
Estimating the macroeconomic effect of tariffs is crucial.
Tariffs are a type of excise tax applied to imported goods.
As an excise tax, tariffs introduce a tax wedge between the price a consumer pays for a good and the price a producer receives for that good.
The real impact of tariffs is largely the same whether the Federal Reserve accommodates them or not.
Introducing a new indirect tax like a tariff reduces real, after-tax incomes.
The introduction of a large enough tax means firms may face pressures to decrease nominal wages.
However, given nominal wage stickiness, firms would be unable to do so.
Instead, firms would reduce employment.
An increase in unemployment arising from a large enough tax increase would prompt the Federal Reserve to raise the price level.
Employers could then hold nominal wages constant, but wages (and employment costs) would fall in real terms.
If the Federal Reserve accommodates higher tariffs with a one-time increase in the price level, it does not shift the burden of tariffs to a new or different group than if the price level remains constant.
The additional burden of tariffs on imports consequently extends to exporters, as after a U.S.-imposed tariff, Americans import fewer goods and exchange fewer USD for foreign currencies.
This reduces the global supply of USD and demand for foreign currency, pushing up the value of the USD.
While some may think tariffs could be used to reduce imports and thus alter the overall balance of trade, the reality is that tariffs do not have a direct impact on the trade balance.
The balance of trade is driven by differences between domestic saving and domestic investment.
A tax on imports will reduce imports but will also reduce exports, leading to a lower overall level of trade.
Tax Foundation uses its General Equilibrium Model to simulate the macroeconomic effect of tariffs.
The model comprises three main components that work together to produce estimates.
The first component is a tax simulator, providing estimates of marginal tax rates on different sources of personal and business income.
The second component is a neoclassical production function, estimating long-run changes in the level of output based on changes in the capital stock and labor force in response to policy.
Lastly, the allocation model combines outputs from the tax and production models with aggregate accounting identities and saving responses to forecast GDP components, the balance between saving and investment, international account, wealth, and gross national product (GNP).
To model the macroeconomic effect of tariffs, the tax wedge on labor introduced by tariffs is simulated, reducing incentives to work and leading to a reduction in labor supply and economic output.
This, in turn, reduces returns to capital, leading to less capital investment and a smaller capital stock.
Long-run macroeconomic effects from universal tariffs of 10 percent, 15 percent, and 20 percent estimate a 10 percent universal tariff would reduce GDP by 0.4 percent in the long run and hours worked by 400,000 full-time equivalent jobs.
A 15 percent universal tariff would reduce GDP by 0.6 percent and hours worked by 581,000 full-time equivalent jobs.
Finally, a 20 percent universal tariff would reduce GDP by 0.8 percent and hours worked by 735,000 full-time equivalent jobs.
Some tariffs that apply to capital inputs would directly affect the cost of capital in the U.S.
In the long run, tariffs can further reduce productivity by reallocating workers and investment to less productive sectors of the economy.
These effects were not incorporated into the current modeling, likely underestimating the negative economic impact of tariffs.
The dynamic revenue estimate begins with the conventional estimate and incorporates the revenue feedback from the modeled macroeconomic effects.
A reduction in hours worked, the capital stock, and economic output reduces incomes and the tax base for federal taxes, resulting in negative revenue feedback.
Revenues raised by tariffs are estimated to be approximately 16 percent to 20 percent lower than the conventional estimate over the 10-year budget window.
For example, the dynamic revenue estimate for the 10 percent universal tariffs falls by $450 billion to $1.7 trillion over the 10-year budget window.
For a 15 percent universal tariff, the revenue falls by $654 billion to $2.2 trillion, and for a 20 percent universal tariff, the revenue falls by $843 billion to $2.6 trillion.
These estimates reflect the U.S.-imposed tariffs’ effect on the U.S. economy; however, it is crucial to account for the likely foreign retaliation that would follow.
Retaliatory tariffs will result in harm to the U.S. economy similar to that resulting from U.S.-imposed tariffs.
Foreign tariffs will reduce demand for U.S. exports and, consequently, incomes earned by U.S. exporters.
Retaliatory tariffs can also prompt dollar depreciation, which may offset some of the harms on exporters and transfer it to importers.
Long-run macroeconomic effects from retaliatory tariffs of 10 percent, 15 percent, and 20 percent estimate a 10 percent retaliatory tariff would reduce GDP by 0.3 percent in the long run and hours worked by 252,000 full-time equivalent jobs.
A 15 percent retaliatory tariff would reduce GDP by 0.4 percent and hours worked by 360,000 full-time equivalent jobs, while a 20 percent retaliatory tariff would reduce GDP by 0.5 percent and hours worked by 460,000 full-time equivalent jobs.
The negative macroeconomic effects of retaliatory tariffs will shrink output and incomes in the U.S., ultimately reducing U.S. tax revenues.
Incorporating these effects results in $278 billion less revenue over the next decade from 10 percent retaliatory tariffs, $401 billion less revenue from 15 percent retaliatory tariffs, and $517 billion less revenue from 20 percent retaliatory tariffs.
Thus, the total dynamic revenue estimate with retaliation falls to $1.4 trillion for 10 percent universal tariffs, $1.8 trillion for 15 percent universal tariffs, and $2.0 trillion for 20 percent universal tariffs.
In conclusion, the analysis of hypothetical universal tariffs of 10 percent, 15 percent, and 20 percent illustrates revenue generation potential—ranging from $2.2 trillion to $3.4 trillion over a decade on a conventional basis.
However, this revenue diminishes when accounting for the broader economic impact, with expected revenue declining to $1.7 trillion for a 10 percent tariff, $2.2 trillion for a 15 percent tariff, and $2.6 trillion for a 20 percent tariff.
Revenue and GDP would fall further with retaliation; total dynamic revenue estimates with retaliation drop to $1.4 trillion for 10 percent universal tariffs, $1.8 trillion for 15 percent universal tariffs, and $2.0 trillion for 20 percent universal tariffs.
This hypothetical policy of universal tariffs is illustrative but does not capture all likely outcomes.
It assumes that tariff rates are maintained permanently or throughout the 10-year budget window, inconsistent with the fluctuating policies of the Trump administration and potential litigation against tariffs or policy shifts due to changes in political control.
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