The Media and Procedures Committee has begun to consider the tax changes proposed by Trump, which include the imposition of tariffs. According to CBO estimates, this measure could result in an annual drop in the U.S. economy between 0.3% and 0.7%, along with an increase in inflation close to 1% over the next few years.
Trump's advisors believe that tariffs could generate significant revenue, but they do not consider that the demand for most imported products in the United States is not completely inelastic. This could lead to a reduction in estimated revenues, as well as other inflationary effects and impacts on economic growth, depending on the retaliation taken by the affected countries.
More than 70% of Mexico and Canada's exports to the U.S. consist of semi-finished products and raw materials, which would negatively impact the region's GDP. A slowdown in U.S. growth would also affect production and the exchange rate, generating additional consequences.
Trump seeks to fund his promises to cut corporate taxes and exempt certain incomes, which is estimated to result in a debt of more than $7 trillion in the next decade. The collection of tariffs cannot completely replace income taxes in the U.S., and a stagnant economy could increase government debt.
The United States appears to be considering imposing tariffs on its main trading partners, which could ensure significant revenue from this concept. However, this long-term measure is not sustainable, and a review of the USMCA and bilateral agreements is expected to promote a trade surplus for the U.S.
It is estimated that a strong response from Canada to the tariff measures could lead to a decline in both economies. Last year, tariffs generated revenue of more than $77 billion, equivalent to 1.6% of federal revenue.
Trump has spoken about reducing or eliminating the income tax, replacing it with tariffs. Alternative agreements are expected to be generated to offset the possible revenue decline. The MAGA movement and various media outlets have been closely following this evolution in U.S. tax policies.
