Will Trump's Proposed External Revenue Service Really Make America Great Again? The Claim That Could Change Global Trade Forever!

The 2024 presidential race is heating up, and one proposal is creating major buzz: President-elect Donald Trump's plan to establish a new federal agency, the External Revenue Service (ERS), dedicated to collecting tariffs, duties, and foreign revenue. He promises this will force other countries to "pay their fair share," but is this claim as groundbreaking as it sounds, or just another campaign promise? Let's dive into the details.

Understanding the External Revenue Service: A New Dawn or a Waste of Resources?

Trump's proposal outlines a seemingly straightforward mission: centralize the collection of foreign revenue. Currently, this task is shared between several agencies – the Commerce Department, the U.S. Trade Representative (USTR), and U.S. Customs and Border Protection (CBP). The idea is that the ERS would streamline this process, leading to greater efficiency and increased revenue collection. But experts are already raising concerns.

A Case for Efficiency?

While the vision sounds efficient on paper, many experts doubt the necessity. The agencies responsible currently for collecting foreign tariffs and duties already operate proficiently. The ERS's establishment might not significantly accelerate the collection process. Indeed, the administrative cost involved in creating and staffing yet another federal agency could potentially overshadow any supposed efficiency gains.

Who Really Pays?: Tariffs Aren't Always a Win for Americans

Trump's rhetoric frames the situation as an aggressive stance to make other nations pay their due. However, experts warn against oversimplifying tariffs. When tariffs are levied, it's rarely an exact transaction where one country definitively 'pays' the other. Higher tariffs typically result in increased costs for American consumers purchasing imported goods. While it is true that a trade deficit could signify America paying a significant amount for international goods, directly translating increased tariffs into more revenues, as this agency aims, is over-simplistic. Consequently, Trump’s proposed changes could spark retaliatory tariffs by other countries, escalating the cost of trade. If that happens, American consumers are once again left bearing the economic brunt.

Weighing the Economic Impacts: Inflation, Retaliation, and the Bottom Line

Trump’s proposed sweeping tariff hikes – potentially 25% on goods from Mexico and Canada, 10% on all foreign imports, and upwards of 60% on Chinese goods – present a formidable economic threat. Economists express grave concerns, suggesting such broad-based tariffs might reignite inflation. And then there's the looming threat of retaliatory tariffs imposed by affected nations.

How the US stacks up with other nations' tariff collection

The past few years show the actual effect of increased tariffs. The Trump administration oversaw the collection of $89.1 billion in tariff revenue, while the Biden administration surpassed that significantly, netting $144 billion by March 2024. This is partially due to the greater tariff levels employed by the Biden administration (a 100% duty on electric vehicles from China), indicating a clear departure from Trump’s promises.

Potential for Unforeseen Economic Consequences

If such widespread tariffs are levied, the negative effects on international trade are substantial. The ripple effect could lead to reduced global trade, hurting American businesses involved in imports and exports alike. This scenario could potentially destabilize supply chains that millions of Americans are already deeply dependent on.

Legal and Political Considerations: What are the Legal Parameters?

Presidents have existing legal avenues to adjust tariffs. They can invoke national security threats or address instances of perceived unfair foreign trade practices as justification. Trump, in his previous term, made considerable use of these powers, but the current levels and the implementation methods remain to be examined under the new framework.

The role of existing agencies and Trump's possible violations

Trump’s plan disregards and directly overlaps existing agencies and the complex processes already in place for collecting tariff and other foreign revenue. In addition, the legal feasibility of implementing an External Revenue Service solely based on the existing parameters for presidents to invoke tariff adjustments remains unclear. Any attempt to unilaterally expand this role or collect revenues beyond those legal justifications could incur legal ramifications.

Take Away Points

• Trump's proposed External Revenue Service aims to centralize the collection of foreign revenue, streamlining the existing systems.
• Economists and trade experts express concerns that this action could potentially increase consumer costs, trigger retaliatory tariffs from other nations, and disrupt trade relationships.
• Existing laws already grant the president wide latitude in adjusting tariffs under circumstances defined under specific limitations.
• The establishment of the External Revenue Service carries uncertainties regarding its true effectiveness and potential costs. A thorough cost-benefit analysis is required to establish its feasibility.
• The potential economic and political consequences of increased, widespread tariffs demand careful scrutiny and a detailed risk assessment.