In recent months, the Trump administration has floated a bold claim: that a new round of tariffs could raise hundreds of billions of dollars annually and fund significant tax cuts. President Trump’s senior advisor, Peter Navarro, even suggested the U.S. could generate an additional $600 to $700 billion per year from tariffs alone.
A new study by economists Simon Evenett and Marc-Andreas Muendler delivers a clear and data-driven answer: Tariffs cannot plausibly fund the U.S. government, and certainly not at the levels claimed by Navarro. Under realistic assumptions, tariffs would fund no more than two weeks of government spending at current levels.
Evenett and Muendler’s paper, “Tariffs Cannot Fund the Government: Evidence from Tariff Laffer Curves,” uses a sophisticated global economic model (the cModel) to simulate the real effects of broad-based U.S. tariff increases. Their findings are consistent with basic economic theory: Tariffs are taxes that shrink the activity they target—trade. Raise tariffs high enough and trade falls off, sharply limiting how much revenue tariffs can ever collect.
The authors apply a version of the familiar Laffer Curve logic: Just as income taxes have a revenue-maximizing point beyond which higher rates lower total revenue, tariffs have their own peak. Even under extremely optimistic (unrealistic) assumptions, where only a small fraction (25%) of tariff revenue is saved rather than spent (trade deficit passthrough), the maximum additional revenue achievable from across-the-board tariffs is around $450 billion (Figure 1).
Figure 1. Estimated U.S. Tariff Revenue Increases by Tariff Rate and Trade Deficit Passthrough
More realistic scenarios yield much lower numbers. For instance, if half or more of tariff revenue is saved (a more realistic assumption), the maximum additional revenue would top out at less than $300 billion. To put that in perspective, $300 billion would fund barely two weeks of federal government spending. By contrast, the 2024 federal budget topped $6.8 trillion.
The study also notes that the U.S. government currently collects around $86 billion annually from existing tariffs, enough to fund just four days of operations.
There’s a fundamental trade-off at work here: If tariffs are effective in reducing imports and shrinking the trade deficit (as the administration wants), there will be fewer goods to tax, and revenue gains will diminish. If, somehow, imports barely fall in response to higher tariffs (an unlikely outcome) the economic burden on U.S. consumers and businesses will likely skyrocket, undermining household purchasing power and investment.
Evenett and Muendler’s analysis reinforces why modern economies don't finance governments through tariffs anymore. The idea worked in the 19th century because the federal government was tiny and expenditures were minimal. Today’s welfare state with vast entitlement programs and administrative costs cannot be supported by taxing imports.
In short, the dream of financing today’s government by resurrecting McKinley-era tariff policy is a fantasy. Tariffs are not a magic revenue source. They are an inefficient tax that harms consumers, distorts markets, and cannot plausibly generate the revenues needed to sustain a modern federal government.
Once again, sound economics proves more durable than wishful thinking.