Some of the highest tariffs, 25%, have been proposed against products being imported from Canada and Mexico. Trump, and many of his supporters in Congress, view tariffs as a way to offset tax cuts. During the campaign, Trump proposed a reduction in the corporate income tax from 21% to 15%.
With tariff talk happening at the national and international level, Navarre Press reporter Hansen Hasenberg spoke with Randall Holcombe, a former economic adviser to then-Gov. Jeb Bush of Florida, about what tariffs are, their historical use, and what effects consumers could see once tariffs go into effect.
Holcombe has spent to the last 50 years teaching economics, with the past 37 years having been at Florida State University. He currently holds the title of FSU DeVoe L. Moore Professor of Economics and primarily studies and lectures on the effects of government policy on economic growth.
“We have had tariffs since the beginning of the nation,” Holcombe said. “If you go back before 1913, when the income tax was established, tariffs were the main source of revenue for the federal government.”
The United States has maintained tariffs but at smaller rates for much of the last 80 years as ‘free trade’ became a staple of the neoliberal economic order. Over the past 30 years, tariff rates have largely declined, except for 2018 and 2019, when President Trump instituted significant tariff increases on goods, especially China.
According to Holcombe, tariff rates depend largely on what goods are being imported. He said the average tariff rate coming into 2025 has been around or below 2%.
With industrial goods as of Jan. 28, the tariff rate is 2%. According to the U.S. Trade Representative, approximately 94% of U.S. merchandise imports by value are industrial (non-agricultural) goods.
“They are a pretty small chunk of federal revenue, and they are pretty small element in prices of imported goods in most cases,” Holcombe said.
With a substantial increase in tariff rates, however, Holcombe said consumers could see price increases as companies try to cover higher import costs.
“Well, they would raise the price of imported goods,” Holcombe said. “It’s possible that exporters might absorb some of the costs of the goods, but its an additional cost. So, you would expect that it would be felt in terms of higher prices.”
Holcombe argues that prices of consumer goods made within the U.S. may also increase under tariffs, as domestic producers would be shielded from foreign competition.
A student of the Austrian School of Economics, Holcombe tends to favor free market principles and lower tariffs. He cites an example from the early 1930s as an example of tariffs having a negative effect.
“In the 1930s, during the Depression, we put on large tariffs, known as the Smoot-Hawley Tariff (Act), and a lot of economists attribute a downturn in economic activity partly (because of) the establishment of tariffs,” Holcombe said. “It interfered with free trade.”
Enacted in the summer of 1930, the Smoot-Hawley Act was a law which raised the average tariff to nearly 60%. The purpose of these measures was to protect American farmers and industry effected by the Stock Market Crash of 1929. While the goal was protection, the effect was considerable economic strain across the globe as other nations retaliated with increased tariffs of their own. The result was ever more economic devastation as the Great Depression took hold.
Holcombe said higher tariffs also can have a negative impact on other countries’ buying power, which effects their ability to buy American exports. Retaliatory tariffs, such as those implemented in the 1930s, can also have a negative impact on American exports.
While Holcombe argues that tariffs aren’t always the best strategy to deal with the ebbs and flows of economies, he understands their potential usefulness as a bargaining tool.
“Trump has been talking up tariffs big time but also Trump is a big talker,” Holcombe said. “A lot of times Trump will use jawboning to try to get others to go along with what he wants. He might be threatening tariffs but that doesn’t necessarily mean he will propose them. He can use them as a bargaining (chip).”
The 47th President recently did this with Columbia, after the country’s leadership refused to accept deported migrants. The South American country backed down from their refusal, allowing the deportation flights to continue to avoid an increase in tariffs.
While the full extent of Trump’s tariff schedule remains unknown, the current U.S. tariff schedule is available through the U.S. Trade Representative’s website. For a look at the Harmonized Tariff Schedule of the U.S., which sets out tariff rates and statistical categories for all merchandise imported into America, visit https://hts.usitc.gov/.