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Trump's Ego, Economic Illiteracy Cost Americans $2 Tril., and Counting
By Tom Kagy | 19 Jun, 2025

What the President apparently doesn't understand about how the world works has been a financial disaster for American consumers and businesses.

What the average college graduate learns by early adulthood, Donald Trump has yet to learn.  His lack of education has cost us $2 trillion.  Unless he catches on quickly, we're likely to keep losing several trillion in economic value per year until he's out of office.

1.  Bluffs and arrogant insults don't lead to good deals.

Back in early April Donald Trump bragged that countries were "kissing his a**" to make trade deals.  70 days later, with only a single almost-deal with the Brits — easily the most accommodating of all US allies — Trump is being exposed as the arrogant liar he is, even among his followers.  

His arrogance has provoked China to use its rare earths leverage to inflict political pain on Trump, and incidentally, on American industry and consumers.  Other countries, even our closest allies, aren't willing to submit to Trump's offensive negotiating tactics.  The EU, Japan, S. Korea and Canada appear to have decided to bide their time and wait for US courts to declare no economic emergency supported Trump's usurpation of the tariff authority assigned Congress by the Constitution.  

You can bet that all our trading partners have US legal advisors who have told them to sit tight and wait for the outcome of various cases seeking to enjoin Trump's foolish and destructive tariffs as illegal and void.

Meanwhile the confusion and chaos Trump has sown has already cost American businesses big and small about $250 billion in lost revenues, and Americans as a whole about $2 trillion in loss of value to their retirement accounts, stocks, real estate, and even savings due to the 10% drop in the dollar's buying power.

2.  Tariffs can't possibly liberate Americans from income taxes — or even from our big trade deficits.

Trump calls his tariffs "Liberation Day Tariffs".  While he has hinted at times that the high tariffs are a negotiating ploy, for the most part he seems actually to believe that higher tariffs will generate enough revenue to liberate Americans from income taxes.  

Anyone with a basic grasp of the US economy knows that's nonsense.

In 2024 the IRS raised $5.1 trillion in income taxes.  On the other hand, Customs and Border Patrol (CPB) collected $260 billion, most of which came out of the pockets of American consumers and importers, not foreign countries.  

Moving forward, Trump's ever-fluctuating tariffs — as well as the impact it will have on US production and consumption — makes estimates of tariff collection tricky.  But estimates by several respected entities suggest that Trump's tariff's, if implemented fully, would increase CPB's revenue collection only modestly.  

The Tax Foundation estimates Trump's tariff policy will collect about $2.1 trillion over the next decade.  That comes to only about $210 billion a year, or less than pre-Trump tariffs collected in 2024.

The Tax Policy Center is more generous with a $3.3 trillion estimate over 10 years, or about $330 billion a year, $80 billion more than 2024 collections.

Yale’s Budget Lab projects that all tariffs announced to date by Trump would raise about $3.1 trillion over 2026–2035, “including the effect of retaliation to date.”

It's clear that tariffs, no matter how crazy they get, can't possibly liberate many, if any, Americans from income taxes.

3.  Tariffs are a national sales tax on consumers and American business, not on foreign countries.

The impact of tariffs fall most heavily on low-income consumers who currently pay no taxes under the progressive income tax structure currently in place.  Rather than "liberating", the tariffs will impose about a $2,000 per year burden on the average middle-class household (who tend to spend a higher percentage of their budgets on goods made in China, Vietnam, India, Bangladesh, Mexico, etc.  That's a big burden that will have a strongly felt and resented negative impact.  Meanwhile the tax cuts Trump seeks to bestow on the wealthy will hardly be noticed by their beneficiaries.  

So not only will no American be liberated by Trump's tariffs, the the poorest will be enslaved by them.

The other segment that will suffer an added burden are businesses, both big and small, that will have to cut margins to offset part of the tariffs and/or the cost of building new supply chains.  These costs will be partly passed on to consumers and partly offset by layoffs that, again, will adversely impact the working poor.  In many cases, the tariffs will simply drive many American companies out of business by depriving them of supplies essential to their survival.  

The cost of such losses to the economy are incalculable, but certainly well in the hundreds of billions of dollars per year.

4.  Tariffs can't eliminate big trade deficits as they reflect the US economy's service orientation and high standard of living.

Reductionists like Trump see trade deficits as a loss-making evil caused by unfair trade rules imposed by greedy nations seeking an unfair trade advantage.  The reality is far more complex — and advantageous to the US.

It's true that some nations do have protectionist barriers that present obstacles to US exports of things like rice, wheat, cars and industrial products.  Such measures are generally imposed by nations trying to preserve a degree of self-sufficiency in basic food staples (generally rice), advanced nations (the EU) seeking to protect high food safety standards that exceed that of the US, or poor developing nations trying to lay a foundation for an industrial base with which to pull their people out of sub-subsistence-level living standards.

Rational US administrations recognize and tolerate such trade barriers as artifacts of a multi-cultural world in which each nation must deal with unique social, political and economic constraints.  Just as a rational government wouldn't try to arrest everyone in a neighborhood because it contains a higher than average number of lawbreakers, it's insanity for the US to impose a one-size-fits-all trade policy just because it thinks it has the power to do so.

The most important reason Trump's tariffs are irrational is the reality that the US uses far more tangible products per capita while producing more high-value services than other nations.  What that means is that the US can't possibly field enough workers to work on factory floors to produce most of the consumer goods we use.  This is even more true as Trump persists in his fool's errand of deporting the migrant workers who form the foundation for farming, construction, hospitality, elderly-care, among other industries.

We Americans are too busy producing hi-tech products and sophisticated services, including a respected educational system that attracts many of the world's most talented and/or wealthy young people, most of whom pay full tuition (unlike 90% of American students).  As a result, in 2024 the US enjoyed a $295 billion services surplus that offsets much of its $918 bil. deficit in goods.  

A reductionist (okay, simple-minded) leader like Trump labels that $600 billion overall trade deficit as an evil to rail against for the benefit of his equally reductionist base.  But that ignores larger economic factors that greatly favor the US and American consumers.  The stability, high standard of living and economic dynamism historically associated with American society has made it the world's leading magnet for foreign direct investments (FDI).  

In 2024 foreigners poured into the US about $300 billion in FDI, about a 50% jump over 2023 FDI of around $200 billion.  The cumulative total of FDI in the US is about $6 trillion as of early 2025.  Those investments have a huge positive and lasting impact on the US economy, not only in terms of business growth enabled by FDI, but because it pumps up the value of the dollar, the ultimate measure of the buying power of American consumers.

To invest in the US foreigners buy a large amount of dollars, and sell their currencies, raising the dollar's value relative to other currencies.  The strong dollar lets Americans buy a product from a country like China, Vietnam or Mexico for about half the cost of buying it from a producer in the US — even if a US company could produce it with the same cost-efficiency, which if course it can't due to high US labor costs and lack of essential supply chains.  

So the nominal $600 billion overall trade deficit on about $2 trillion worth of goods imports represents in real terms a value-added surplus of well over $1 trillion due to the dollar's outsize purchasing power.  In other words, if not for the strong dollar Americans would lose about $1 trillion worth of purchasing power each year, greatly lowering our standard of living  We will soon discover what this means to our standard of living if Trump is able to persist in his bolt-from-the-blue tariff scheme.

Fortunately, there are several major forces currently coming into play that will ensure that won't happen.  But that's a subject for another day.

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