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Historical Context

2024 Campaign Proposals

Tariffs featured heavily in the 2024 presidential campaign as candidate Trump proposed a new 10 percent to 20 percent universal tariff on all imports, a 60 percent tariff on all imports from China, higher tariffs on EVs from China or across the board, 25 percent tariffs on Canada and Mexico, and 10 percent tariffs on China.

We estimate Trump’s proposed 20 percent universal tariffs and an additional 50 percent tariff on China to reach 60 percent will reduce long-run economic output by 1.3 percent before any foreign retaliation. They will increase federal tax revenues by $3.8 trillion ($3.1 trillion on a dynamic basis before retaliation) from 2025 through 2034.

2018-2019 Trade War: Economic Effects of Imposed and Retaliatory Tariffs

Using the Tax Foundation’s General Equilibrium Model, we estimate the Trump-Biden Section 301 and Section 232 tariffs will reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and hours worked by 142,000 full-time equivalent jobs. The reason tariffs have no impact on pre-tax wages in our estimates is that, in the long run, the capital stock shrinks in proportion to the reduction in hours worked, so that the capital-to-labor ratio, and thus the level of wages, remains unchanged. Removing the tariffs would boost GDP and employment, as Tax Foundation estimates have shown for the Section 232 steel and aluminum tariffs.

Table 6. Estimated Impact of US Imposed Tariffs, 2018-2019 Trade War

Note: 2018-2019 trade war tariffs reflect Section 301 tariffs on imports from China and Section 232 tariffs on certain steel and aluminum imports.
Source: Tax Foundation General Equilibrium Model, June 2024.

We estimate the retaliatory tariffs stemming from Section 232 and Section 301 actions total approximately $13.2 billion in tariff revenues. Retaliatory tariffs are imposed by foreign governments on their country’s importers. While they are not direct taxes on US exports, they raise the after-tax price of US goods in foreign jurisdictions, making them less competitively priced in foreign markets. We estimate the retaliatory tariffs will reduce US GDP and the capital stock by less than 0.05 percent and reduce full-time employment by 27,000 full-time equivalent jobs. Unlike the tariffs imposed by the United States, which raise federal revenue, tariffs imposed by foreign jurisdictions raise no revenue for the US but result in lower US output.

Table 7. Estimated Impact of US Retaliatory Tariffs, 2018-2019 Trade War

Note: 2018-2019 retaliation reflects retaliatory tariffs on $6 billion of US exports in response to Section 232 tariffs and more than $106 billion of US exports in response to Section 301 tariffs.
Source: Tax Foundation General Equilibrium Model, June 2024.

Tariff Revenue Collections Under the Trump-Biden Tariffs

As of the end of 2024, the trade war tariffs have generated more than $264 billion of higher customs duties collected for the US government from US importers. Of that total, $89 billion, or about 34 percent, was collected during the Trump administration, while the remaining $175 billion, or about 64 percent, was collected during the Biden administration.

Before accounting for behavioral effects, the $79 billion in higher tariffs amount to an average annual tax increase on US households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per US household, on average. The actual cost to households is higher than both the $600 estimate before behavioral effects and the $200 to $300 after, because neither accounts for lower incomes as tariffs shrink output, nor the loss in consumer choice as people switch to alternatives that do not face tariffs.

2018-2019 Trade War Timeline

The Trump administration imposed several rounds of tariffs on steel, aluminum, washing machines, solar panels, and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion. The Biden administration maintained most tariffs, except for the suspension of certain tariffs on imports from the European Union, the replacement of tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union and United Kingdom and imports of steel from Japan, and the expiration of the tariffs on washing machines after a two-year extension. In May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods for a tax increase of $3.6 billion.

Altogether, the trade war policies currently in place add up to $79 billion in tariffs based on trade levels at the time of tariff implementation. Note the total revenue generated will be less than our static estimate because tariffs reduce the volume of imports and are subject to evasion and avoidance (which directly lowers tariff revenues) and they reduce real income (which lowers other tax revenues).

Section 232, Steel and Aluminum

In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. The value of imported steel totaled $29.4 billion, and the value of imported aluminum totaled $17.6 billion in 2018. Based on 2018 levels, the steel tariffs would have amounted to $9 billion and the aluminum tariffs to $1.8 billion. Several countries, however, have been excluded from the tariffs.

In early 2018, the US reached agreements to permanently exclude Australia from steel and aluminum tariffs, use quotas for steel imports from Brazil and South Korea, and use quotas for steel and aluminum imports from Argentina.

In May 2019, President Trump announced that the US was lifting tariffs on steel and aluminum from Canada and Mexico.

In 2020, President Trump expanded the scope of steel and aluminum tariffs to cover certain derivative products, totaling approximately $0.8 billion based on 2018 import levels.

In August 2020, President Trump announced that the US was reimposing tariffs on aluminum imports from Canada. The US imported approximately $2.5 billion worth of non-alloyed unwrought aluminum, resulting in a $0.25 billion tax increase. About a month later, the US eliminated the 10 percent tariff on Canadian aluminum that had just been reimposed.

In 2021 and 2022, the Biden administration reached deals to replace certain steel and aluminum tariffs with tariff rate quota systems, whereby certain levels of imports will not face tariffs, but imports above the thresholds will. TRQs for the European Union took effect on January 1, 2022; TRQs for Japan took effect on April 1, 2022; and TRQs for the UK took effect on June 1, 2022. Though the agreements on steel and aluminum tariffs will reduce the cost of tariffs paid by some US businesses, a quota system similarly leads to higher prices, and further, retaining tariffs at the margin continues the negative economic impact of the previous tariff policy.

Tariffs on steel, aluminum, and derivative goods currently account for $2.7 billion of the $79 billion in tariffs, based on initial import values. Current retaliation against Section 232 steel and aluminum tariffs targets more than $6 billion worth of American products for an estimated total tax of approximately $1.6 billion.

Section 301, Chinese Products

Under the Trump administration, the United States Trade Representative began an investigation of China in August 2017, which culminated in a March 2018 report that found China was conducting unfair trade practices.

In March 2018, President Trump announced tariffs on up to $60 billion of imports from China. The administration soon published a list of about $50 billion worth of Chinese products to be subject to a new 25 percent tariff. The first tariffs began July 6, 2018, on $34 billion worth of Chinese imports, while tariffs on the remaining $16 billion went into effect August 23, 2018. These tariffs amount to a $12.5 billion tax increase.

In September 2018, the Trump administration imposed another round of Section 301 tariffs—10 percent on $200 billion worth of goods from China, amounting to a $20 billion tax increase.

In May 2019, the 10 percent tariffs increased to 25 percent, amounting to a $30 billion increase. That increase had been scheduled to take effect beginning in January 2019, but was delayed.

In August 2019, the Trump administration announced plans to impose a 10 percent tariff on approximately $300 billion worth of additional Chinese goods beginning on September 1, 2019, but soon followed with an announcement of schedule changes and certain exemptions.

In August 2019, the Trump administration decided that 4a tariffs would be 15 percent rather than the previously announced 10 percent, a $5.6 billion tax increase.

In September 2019, the Trump administration imposed “List 4a,” a 15 percent tariff on $112 billion of imports, an $11 billion tax increase. They announced plans for tariffs on the remaining $160 billion to take effect on December 15, 2019.

In December 2019, the administration reached a “Phase One” trade deal with China and agreed to postpone indefinitely the stage 4b tariffs of 15 percent on approximately $160 billion worth of goods that were scheduled to take effect December 15 and to reduce the stage 4a tariffs from 15 percent to 7.5 percent in January 2020, reducing tariff revenues by $8.4 billion.

In May 2024, the Biden administration published its required statutory review of the Section 301 tariffs, deciding to retain them and impose higher rates on $18 billion worth of goods. The new tariff rates range from 25 to 100 percent on semiconductors, steel and aluminum products, electric vehicles, batteries and battery parts, natural graphite and other critical materials, medical goods, magnets, cranes, and solar cells. Some of the tariff increases go into effect immediately, while others are scheduled for 2025 or 2026. Based on 2023 import values, the increases will add $3.6 billion in new taxes.

Section 301 tariffs on China currently account for $77 billion of the $79 billion in tariffs, based on initial import values. China has responded to the United States’ Section 301 tariffs with several rounds of tariffs on more than $106 billion worth of US goods, for an estimated tax of nearly $11.6 billion.

WTO Dispute, European Union

In October 2019, the United States won a nearly 15-year-long World Trade Organization (WTO) dispute against the European Union. The WTO ruling authorized the United States to impose tariffs of up to 100 percent on $7.5 billion worth of EU goods. Beginning October 18, 2019, tariffs of 10 percent were to be applied on aircraft and 25 percent on agricultural and other products.

In summer 2021, the Biden administration reached an agreement to suspend the tariffs on the European Union for five years.

Section 201, Solar Panels and Washing Machines

In January 2018, the Trump administration announced it would begin imposing tariffs on washing machine imports for three years and solar cell and module imports for four years as the result of a Section 201 investigation.

In 2021, the Trump administration extended the washing machine tariffs for two years through February 2023, and they have now expired.

In 2022, the Biden administration extended the solar panel tariffs for four years, though later provided temporary two-year exemptions for imports from four Southeast Asian nations beginning in 2022, which account for a significant share of solar panel imports.

In 2024, the Biden administration removed separate exemptions for bifacial solar panels from the Section 201 tariffs. Additionally, the temporary two-year exemptions expired and the Biden administration is further investigating solar panel imports from the four Southeast Asian nations for additional tariffs.

We estimate the solar cell and module tariffs amounted to a $0.2 billion tax increase based on 2018 import values and quantities, while the washing machine tariffs amounted to a $0.4 billion tax increase based on 2018 import values and quantities.

We exclude the tariffs from our tariff totals given the broad exemptions and small magnitudes.

Trade Volumes Since Tariffs Were Imposed

Since the tariffs were imposed, imports of affected goods have fallen, even before the onset of the COVID-19 pandemic. Some of the biggest drops are the result of decreased trade with China, as affected imports decreased significantly after the tariffs and still remain below their pre-trade war levels. Even though trade with China fell after the imposition of tariffs, it did not fundamentally alter the overall balance of trade, as the reduction in trade with China was diverted to increased trade with other countries.

Table 8. Imports Affected by US Tariffs

Note: Steel totals exclude imports from Argentina, Australia, Brazil, South Korea, Canada, and Mexico. Aluminum totals exclude imports from Argentina, Australia, Canada, and Mexico. Beginning in 2022, steel totals also exclude imports from Japan, the EU, and the UK, and aluminum totals also exclude imports from the EU and the UK as respective imports are now subject to tariff-rate quotas (TRQs). Excluding all imports for TRQs overstates the savings from TRQs because tariffs still apply when imports exceed historical levels.

Source: Federal Register notices; Tom Lee and Jacqueline Varas, “The Total Cost of U.S. Tariffs,” American Action Forum, Mar. 24, 2022, data retrieved from USITC DataWeb.

AI is everywhere, and now it’s in the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy debate. In this episode of The Deduction, hosts Kyle Hulehan and Erica York sit down with Alex Muresianu, Senior Policy Analyst at the Tax Foundation.

Together they examine what current labor market data actually shows, why proposals from Senators Sanders and Kelly risk backfiring, and what smarter reforms like worker retraining deductions and consumption-based taxation would strengthen the tax code no matter how the AI story unfolds.

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While tobacco taxes are often framed as both revenue measures and public health tools, policymakers should approach such proposals carefully. Tobacco taxes are regressive, and increases frequently generate less revenue than projected, raise cross-border taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. competition concerns, and can create inconsistencies in how similar products are taxed. Delaware’s proposal illustrates many of these challenges.

Under Governor Meyer’s budget plan, Delaware would implement several changes to its tobacco tax structure. The cigarette tax would increase by more than 70 percent from $2.10 to $3.60 per pack. Vapor products would be taxed at $0.10 per milliliter, double the current rate. The tax on moist snuff would increase from $0.92 to $1.23 per ounce. The tax rate on OTPs would increase from 30 to 40 percent of the wholesale price.

Taken together, these changes are expected to generate approximately $18.9 million in new revenue for the state. However, tobacco taxes most heavily burden those who can least afford them and are poorly fitted to address growing government expenditures.

Like many excise taxes, tobacco taxes are highly regressive. Lower-income households spend a larger share of their income on these products than higher-income households.

As a result, tobacco tax increases tend to place a disproportionate burden on lower-income consumers. In Delaware, households in the lowest income quintile pay an effective tax rate nearly 14 times that faced by households in the highest income quintile.

Poorest Delaware Households Face the Greatest Effective Tax Rates for Cigarettes

Cigarette Tax Distribution of Effective Tax Rates Across Income Quintiles, 2025

Notes: Adam Hoffer,“ Compare Tobacco Tax Data in Your State,” Tax Foundation, https://taxfoundation.org/data/all/state/tobacco-tax-data-tool/.

Supporters often argue that reduced consumption mitigates this concern, since higher prices can encourage smokers to quit. However, not all smokers are able or willing to quit immediately, meaning most smokers will continue to pay the higher tax.

Tobacco taxes are also a poor solution to the growing fiscal demands of state governments. Although tobacco tax increases are often attractive to lawmakers because they target a narrow segment of the population, that exact feature makes those revenues unstable and more volatile than broad-based income, sales, and property taxes.

Tobacco consumption has also been steadily declining in the United States for decades. Not surprisingly, tobacco tax revenues have declined to match. Tax hikes have historically provided short-term increases in revenue, but those revenues erode as the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. shrinks.

Delaware is no exception to the national trend. Historically, cigarette tax increases in Delaware have brought short-lived increases to revenues before declining consumption and currency debasement necessitated further rate hikes to chase similar revenue levels.

The declines have accelerated in recent years with the increased availability of less harmful alternative products. Revenues adjusted for CPI inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin are already lower than they were in 2004 despite more than doubling the CPI-adjusted tax rate since. Future tax hikes are likely to bring in less and less revenue because the tax is being paid by fewer and fewer smokers.

Governor Meyer’s budget also includes higher taxes on alternative nicotine products, including vapes. Public health experts argue that vapor products pose substantially lower health risks than combustible cigarettes. While not risk-free, products that allow users to consume nicotine without inhaling combusted tobacco harm users much less.

Tax policy can influence consumer behavior in this space. Basic economics tells us that as tax-induced prices increase, consumers will use less of a product. As taxes increase on alternative tobacco products, the tax system may inadvertently discourage smokers from switching to potentially less harmful alternatives.

The governor’s proposal to raise $18.9 million in additional revenue through higher tobacco taxes represents a significant change to Delaware’s tobacco tax structure. By increasing taxes on cigarettes, vapor products, moist snuff, and other tobacco products, the plan expands the state’s reliance on tobacco excise taxes and its tax burden on the poorest Delaware households.

Well-designed tax policy should prioritize simplicity, neutrality, and transparency—principles that remain important even when taxes target products with well-known public health risks. Delaware policymakers should carefully evaluate whether the proposed changes strike the right balance between these competing objectives.

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A bill passed by the New Mexico legislature risks eroding the state’s corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. environment by rejecting key business-friendly elements of the federal One Big Beautiful Bill Act (OBBBA). It would eliminate state-level conformity with 100 percent bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco for machinery and equipment under IRC Section 168(k), along with immediate expensing for qualified production property under the new Section 168(n). It would also include net CFC-tested income (NCTI) in the state’s taxable base.

Full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs.—commonly known as 100 percent bonus depreciation—enables companies to deduct the full cost of eligible investments in the year they are placed in service, rather than stretching those deductions across multiple years through complicated depreciation schedules. This approach minimizes distortions in investment decisions, counters the effects of inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin, and respects the time value of money, ultimately supporting stronger economic growth and higher output. It also increases the probability that projects will become immediately profitable and incentivizes high fixed-cost investments.

While adopting full expensing entails revenue costs during the initial transition period, when new immediate deductions overlap with existing assets completing their depreciation from prior investments—these effects are largely temporary. Over the medium to long term, the fiscal impact is neutral. The policy simply shifts the timing of tax payments forward. Once legacy assets complete their depreciation periods, new investments receive full upfront expensing with no subsequent deductions.

While SB 151 proposes decoupling from pro-growth tax policy, it also includes unsound tax policy by conforming to IRC Section 951A and including foreign earnings of controlled corporations (in the form of the new NCTI) in the New Mexico corporate tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.—earnings that have frequently already faced taxation overseas. At the federal level, this inclusion aims to discourage profit shiftingProfit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens. to low-tax foreign jurisdictions and guarantee a baseline tax on multinational income, with foreign tax credits available to prevent or mitigate double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. when foreign rates exceed the minimum threshold.

New Mexico, however, offers no such credit for taxes paid abroad. This creates genuine double taxation on the same foreign income, harming US-based multinationals relative to their international competitors.

The NCTI regime replaces the global intangible low-taxed income (GILTI) system. It is notable that New Mexico did not conform to the GILTI provisions of the federal revenue code, a fiscally sound stance that did not seek to tax income earned outside the United States. Taxing NCTI, however, will erode the state’s tax environment needlessly. GILTI sought to distinguish between normal and supernormal returns of above 10 percent, exempting anything below as a qualified business asset investment (QBAI) exclusion. Converting to NCTI makes the problem of states adopting GILTI in their tax base worse. It eliminates the QBAI exclusion, bringing all the corporate income under the state’s tax purview rather than just the “supernormal” returns.

Further, state-level adoption of NCTI taxation implies that foreign tax credits allowed at the federal level actually are picked up as additional income to be taxed, expanding the tax base even further. This leads to more aggressive taxation than under the GILTI regime.

Beyond lack of justification or logic, taxing NCTI or GILTI is simply inefficient. Multinational corporations may respond by restructuring operations to minimize sales apportioned to the state, perhaps through intermediaries or by shifting invoicing to affiliates in more favorable locations, thereby curtailing their corporate tax liability. Further, New Mexico’s apportionment formula also includes payroll and real property owned by the corporation. While NCTI, like GILTI previously in other states, is likely to contribute only marginally to overall state revenues—typically a negligible share—its impact can be pronounced for the very enterprises that policymakers seek to attract, such as innovative firms driving economic expansion.

In light of the federal transition from GILTI to NCTI, states currently taxing this form of international income would be wise to seize the opportunity to disengage from it entirely, and New Mexico should not use global income as a new source of revenues.

In Tax Foundation’s 2026 State Tax Competitiveness Index, New Mexico places close to the middle overall, with its corporate tax component ranking in the upper half of states. Yet SB 151, in its present form, deviates from the principles of sound corporate tax policy. It conflicts with the federal objectives behind NCTI inclusion, taxes foreign-source income beyond what the federal base captures, imposes double taxation without relief for foreign taxes paid, and disadvantages American multinationals operating in the state. Moreover, it also seeks to decouple from the pro-growth expensing provisions contained in the OBBBA, which could discourage capital investment and new business formation and expansion in the state, leaving the state less competitive compared to those states that retain conformity with the OBBBA’s expensing rules.

Lawmakers should consider pro-growth tax policies that will help recruit and retain the next generation of New Mexico residents and businesses. Unfortunately, SB 151 is a step in the wrong direction and could leave New Mexico less competitive, regionally and nationally, for some time to come.

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