US GDP 1.8% Loss
Disposable Income of Bottom 50% Down 3.5%
$5 Trillion Cost Over 10 Years if Tax Cuts Extended
Former U.S. President Donald Trump has announced that if he wins re-election, he will impose a massive 'tariff bomb,' and this policy is expected to burden the U.S. economy by $500 billion annually (approximately 682 trillion KRW).
In particular, the Peterson Institute for International Economics (PIIE) revealed in a report on the 20th (local time) that most of this burden would be passed on to low-income households.
Former President Trump plans to impose a universal 10% tariff on all imports and a 60% tariff on Chinese products if elected.
Kimberly Clausing and Mary Lovely, senior researchers at PIIE, estimated in the report that the combined cost of tariffs in a second Trump term would amount to 1.8% of the U.S. Gross Domestic Product (GDP). This estimate does not include additional damages caused by retaliatory tariffs from trade partners or losses in industrial competitiveness.
They explained that this cost is five times higher than the tariff-related costs incurred from the early Trump administration in 2017 through the end of 2019, effectively imposing an additional annual cost of about $500 billion on consumers. In particular, households in the bottom 50% income bracket are expected to see an average 3.5% reduction in disposable income. Middle-class households are estimated to suffer losses of about $1,700 annually (approximately 2.32 million KRW).
The Biden administration raised tariffs on Chinese electric vehicles from 25% to 100% on the 14th and significantly increased tariffs on Chinese steel, semiconductors, and solar panels. Researcher Lovely analyzed that President Biden’s tariff policies do not negatively impact low-income groups because they apply to much smaller import volumes. He stated, "There has not yet been discussion about a large burden," and explained, "President Biden has explicitly stated that he does not support broad tariff imposition." However, he expressed concerns that both President Biden’s and former President Trump’s tariff policies are tools prone to abuse.
Economists are increasingly concerned about the costs that could arise if various tax cuts introduced by former President Trump, set to expire in 2025, are extended. The U.S. Congressional Budget Office (CBO) stated that considering increased interest payments, the cost of extending all provisions would reach nearly $5 trillion (approximately 6819 trillion KRW) over the next decade.
On the other hand, Arthur Laffer, a senior economist known as Trump’s economic advisor and former University of Chicago professor, claimed that the 2017 tax cuts benefited the economy through growth and increased tax revenues. This claim contradicts the CBO’s analysis, which shows a sharp increase in the fiscal deficit after Trump’s administration.
Additionally, the Trump side argued that tariff revenues could cover the shortfall in tax revenues caused by extending tax cuts. However, PIIE stated that tariff revenues would amount to only $2.75 trillion (approximately 3751 trillion KRW).
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