Donald Trump likes to say that “tariff” is “the most beautiful word in the dictionary.” The president is unlikely to acknowledge he is wrong about that, but clearly, he’s having a hard time convincing the American public to be enamored by a self-inflicted trade war that is hurting farmers, backfiring on many manufacturers and driving up the cost of living for consumers.
Worried that “affordability” is now the primary concern of the electorate, Trump has floated the idea of issuing $2,000 tariff “dividend” checks to millions of Americans next year, hoping the giveaway would stave off Republican losses in the mid-term elections.
It is a terrible idea that would wipe out the main positive of his tariffs — the hundreds of billions of dollars a year they are raising for the federal treasury that could be used to pay down a portion of the unsustainable federal debt.
The math for the tariff dividends simply does not work, and it didn’t take long for economists to crunch the numbers to show it.
The nonpartisan Tax Foundation examined several possible dividend check scenarios. The most conservative – giving the money only to tax filers and their spouses who earn no more than $100,000 a year — would cost about $100 billion more a year than the tariffs are generating. For more generous distributions, the imbalance could be up to four times higher, according to the Tax Foundation’s calculations.
At least two other independent think tanks, the Committee for a Responsible Federal Budget and the Budget Lab at Yale, have reached similar conclusions.
For the president to claim that the government can issue these dividend checks while also paying down the national debt is pure fantasy.
Nor is the deficit the only area that would be driven higher if Congress were to sign off on tariff dividend checks. So would inflation.
The country has already seen that play out. Twice during the first Trump administration and again in the first year of the Biden administration, Congress approved issuing stimulus checks to individuals to ease the economic pain of the COVID-19 pandemic and avoid a deep recession. All that extra money in circulation, combined with supply bottlenecks, drove up inflation and interest rates, which made everything from housing to automobiles to groceries more expensive. Trump’s tariff policies have helped to keep prices high, as they’ve made foreign goods more expensive and reduced the global competition that helps lower the price on American-made products. Artificially trying to make these prices easier to swallow via freebie checks will only keep the prices elevated.
There’s also the possibility that the revenue the U.S. government has been collecting through the Trump tariffs is illusory. If the U.S. Supreme Court rules the president overstepped his authority by imposing them without congressional assent, the money might have to be returned to the companies that paid them. Should that happen, there would be no revenue offset for the dividend checks, thus adding their entire cost to the federal deficit.
As Alex Durante, a senior economist at the Tax Foundation, and others have said, there’s a better, smarter way than dividend checks to help pinched Americans. End the trade war, stop the protectionism and let the competitive forces of the free market bring prices down.
