At the same time, Trump is doing nothing to promote domestic industries or protect American workers. He is trying to unilaterally gut or not implement the Inflation Reduction Act’s subsidies meant to build domestic manufacturing capacity in the clean energy sector, and he’s called for Congress to repeal the CHIPS & Science Act. He is also actively working to undermine workers through National Labor Relations Board rulemakings and other anti-union and worker practices.
Still, there’s a reason this is the main rationale the administration promotes: It makes sense to the public and has public support. But it makes no sense when you look at the other explanations.
Raise Revenue To Replace The Income Tax
One of those other rationales is that tariffs will raise so much revenue that the U.S. will be able to eliminate the income tax.
“Wouldn’t it be amazing to stop paying taxes to the Internal Revenue Service and have the External Revenue Service of Make America Great Again replace our taxes,” Commerce Secretary Howard Lutnick said in March.
The thinking, if you can call it that, is that tariff revenue will be so high that the government can eliminate most income taxes.
You’re going to see billions of dollars, even trillions of dollars coming into our country very soon in the form of tariffs,” Trump said in March.
This, in and of itself, doesn’t add up. The IRS raised $2.96 trillion in from individual and corporate income taxes in 2024 while the total cost of imports of foreign goods was $3.3 trillion. A 100% tariff on all imported goods might make up the entirety of individual and corporate income tax revenue, but, realistically, it would simply mean that those imports would just not come into the U.S. at all: Few people are willing to keep paying for something that has suddenly doubled in price.
Which gets at the conflict between the revenue raising rationale and the bring back manufacturing rationale.
If you want to raise lots of revenue then you would not want to see domestic manufacturing replace those imports: The imports must flow for the revenue to keep coming in, and you don’t want a cheaper alternative that avoids the tax.
And if you want to bring back manufacturing, you want a cheaper domestic product that is an appealing alternative, allowing companies and consumers to avoid the pricier imports entirely.
The administration is also fond of arguing that the U.S. used to do both ― impose tariffs for revenue and use them to build up domestic industries. But when Alexander Hamilton proposed this combo, as administration officials like to cite, the country was relatively poor and underdeveloped. Developed economies don’t rely solely on tariff revenue because they have the state capacity and knowledge base to implement a progressive income tax.
Negotiate Better Deals
Or maybe this whole thing isn’t about rebuilding domestic manufacturing capacity or raising revenue, but instead to force countries to make deals to get Trump to waive the tariffs.
“The tariffs give us great power to negotiate,” Trump said after imposing his “Liberation Day” tariffs. “They always have.”
“If you take it to zero, we’ll take it to zero,” Bessent said in February.
Deals, deals, deals. That’s what Trump is known for, so this rationale seems like common sense. But if you make deals with every country in the world to remove tariffs, you also undermine the other two rationales: less protection to rebuild domestic manufacturing capacity and less revenue from tariffs.
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