Trump Administration scrambles to restore tariff revenue after Supreme Court setback
This week, the Trump administration ramped up its determined effort to replace approximately $1.6 trillion in lost tariff revenue that was wiped out by the Supreme Court’s decision to invalidate a set of the president’s import taxes.
Recovering this lost revenue—funds the White House had relied on to help offset the steep, multi-trillion-dollar cost of its tax cuts—is possible but will be tough, experts say. The administration must use different legal provisions to impose new duties, and these provisions involve longer, more complex procedures that U.S. companies can use to seek exemptions. It may take months or longer to clarify how much revenue the replacement tariffs will generate.
“I wouldn’t bet against this administration being able to, on paper, restore the same effective tariff rate they had before,” said Elena Patel, co-director of the Urban-Brookings Tax Policy Center. But the new approach will “make it easier for people to challenge the tariffs, which will put a major question mark over the revenue until all that is resolved.”
On Wednesday, U.S. Trade Representative Jamieson Greer stated the administration will investigate 16 economies—including the European Union—over whether their governments are subsidizing excessive factory capacity in a manner that harms U.S. manufacturing. The investigation will also cover China, South Korea, and Japan, Greer said.
Additionally, he noted there will be a second investigation of dozens of countries to determine if their failure to ban goods made by forced labor constitutes an unfair trade practice that damages the United States. This investigation will also include the EU and China, along with Mexico, Canada, Australia, and Brazil.
Both investigations are being conducted under Section 301 of the 1974 Trade Act, which mandates the administration to consult with the targeted countries, hold public hearings, and allow affected U.S. industries to provide input. A hearing for the factory capacity investigation is scheduled for May 5, while a hearing for the forced labor investigation will take place on April 28.
This stands in sharp contrast to the emergency law President Donald Trump used in his first year in office, which allowed him to immediately impose tariffs on any country, at nearly any rate, simply by issuing an executive order.
Shortly after the Supreme Court’s ruling, Trump imposed a 10% tariff on all imports under a separate legal authority, though this duty can only remain in place for 150 days. The president has said he would raise it to the maximum allowed 15%, but has not yet done so. Around two dozen states have already challenged the new tariffs. The administration aims to complete its Section 301 investigations before the 10% duties expire.
This effort highlights the significance the Trump White House has placed on tariffs as a revenue source at a time when the federal government faces large annual budget deficits for decades to come. Previous administrations, by comparison, used tariffs more sparingly to narrowly protect specific industries.
Erica York, vice president of federal tax policy at the Tax Foundation, pointed out that the first investigation covers roughly 70% of imports, while the second would cover nearly all of them.
“That broad scope suggests the goal isn’t to address the issues at hand, but rather to recreate a sweeping tariff mechanism,” she said.
Trump views tariffs as a way to effectively make foreign countries contribute to funding U.S. government services, even though all recent economic studies—including those from the Federal Reserve Bank of New York and Harvard University economists—find that American companies and consumers are bearing the cost of the duties. In his State of the Union address last month, Trump even promoted his tariffs as a potential substitute for the income tax, which would revert the U.S. tax system to its late 19th-century structure.
Trump also intends for tariffs to help finance the tax cuts he extended through key legislation last year. According to the latest estimates from the nonpartisan Congressional Budget Office, the tax cut legislation is projected to add $4.7 trillion to the national debt over a decade, while all of Trump’s tariffs—including those not struck down by the court—were forecast to offset about $3 trillion, or two-thirds of that cost.
The CBO reports that the court’s February 20 ruling, which barred Trump from imposing emergency tariffs, eliminated approximately $1.6 trillion in expected revenue over the next decade.
Some of Trump’s tariffs remain in place, including prior duties on China and Canada imposed following earlier Section 301 investigations. The administration has also imposed tariffs on specific products, such as steel, lumber, and cars. The Tax Foundation estimates that these, combined with the 10% tariff in effect for part of this year, should generate about $668 billion over the next decade.
“It will take a very large patchwork of these other investigations to make up for the (lost) tariffs,” York said.
The administration’s efforts are also unusual because they reflect an over-reliance on tariffs to boost government revenue. Trump has also stated the duties aim to bring manufacturing back to the United States and has used them to leverage trade deals.
“What makes this truly distinct,” said Kent Smetters, executive director of the Penn Wharton Budget Model, “is that it’s the first time tariffs have primarily been used as a revenue-raising tool.”
Patel, meanwhile, argues that Congress could raise revenue more reliably and straightforwardly. Laws like Section 301 are traditionally meant to address specific trade policy concerns in particular countries.
“It’s not intended to be a revenue-raising tool,” she said. “If we want to raise revenue through tariffs, Congress should impose a broad-based tariff.”