In 1824, tariff revenue accounted for 95% of the US government's revenue; in 2024, tariff revenue accounted for 1.6% of government revenue. 200 years later, the meaning of tariffs has changed for the US government.
In the first half of the 19th century, tariffs were the main source of revenue for the US government, accounting for about 90%. In the 1860s, the American Civil War broke out. During this Civil War, the US government's expenditures soared, and it had to collect more taxes from the country to ensure a balance of payments. In 1862, the United States began to levy income tax and consumption tax on the country. During this period, consumption tax revenue gradually increased and became the main source of US government revenue, sharing the same proportion as tariff revenue.
In the first half of the 20th century, two world wars and a great depression put the US government in a huge economic crisis. During this period, the income tax rate was raised several times, and the highest marginal tax rate of personal income tax increased significantly. After 1944, the scale of personal income tax revenue of the US government grew rapidly, and it is still the largest source of income for the US government today. During this period, another tax also squeezed out the income status of tariffs. In 1935, the United States passed the (Social Security Act). As an important part of the US pension insurance system, the government began to collect social security taxes from the people (taxes instead of fees). As a result, the social security and pension fees paid by the people have become another major source of income for the US government.
So far, although the amount of US tariffs has increased year by year, it accounts for a very small proportion of the US government's overall revenue, even to the point of being negligible. For the US government today, the significance of tariffs as a trade weapon has replaced their significance as a revenue tool.
On November 25, US President-elect Donald Trump posted on his social platform Truth Social that he will soon impose high tariffs on two of the United States' "neighbors," Mexico and Canada, after taking office. Trump said in the post that he will impose a 25% tariff on all products entering the United States from Mexico and Canada on his first day in office. Market participants believe that this is the clearest signal Trump has sent since his election, indicating that he plans to fulfill the tough campaign rhetoric that helped him enter the White House.
The scene of Trump wielding the "tariff" stick during his first term is still vivid in our minds. Since Trump raised tariffs in 2018, what impact has the United States suffered? In 2019, the San Francisco Federal Reserve estimated that Trump's tariff increase would lead to an increase in inflation by 0.1 percentage points and an increase in investment costs by 0.4 percentage points. The Tax Foundation, a third-party independent think tank in the United States, estimated that after the tariff increase, the average tax for each American household would increase by $625 per year.
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Article forwarded from: Jinshi Data
