04/26/2025 P.M.
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$15 Billion And Climbing: Trump’s Tariffs Deliver Record High Revenue
04/26/2025
The following is not intended to criticize anyone; but, only for placing more ideas on the table since we all have different experiences with our money.
First, we must understand the rules of the road:
Is President Trump right when he says the US faces unfair trade?
14 February 2025 Share
Ben Chu
Donald Trump has ordered his team to come up with plans to impose a new set of taxes – known as tariffs – on goods coming into the United States.
Trump wants to introduce “reciprocal tariffs” – taxes on imports to the US which are set at a similar rate to taxes other countries put on goods they import from the US.
The president says other countries often have higher tariffs on imports from the US than the other way round and believes America “has been treated unfairly by trading partners, both friend and foe”.
How do countries set tariffs on imports?
First, it is important to understand the rules of global trade.
Under the terms of membership of the World Trade Organisation (WTO), countries are permitted to impose tariffs on imports.
Those tariffs can differ depending on the item being imported.
So, for instance, a nation can impose a 10% levy on rice imports and a 25% tariff on car imports.
But under WTO rules, they are not supposed to discriminate between nations when setting the tariff they charge on a particular imported good.
So Egypt, for example, would not be allowed to impose a 2% tariff on wheat coming from Russia, but a 50% tariff on wheat coming from Ukraine.
This is known as the “Most Favoured Nation” (MFN) principle in international trade: everyone has to be subject to the same tariff by the country imposing the tariff.
There is an exception when two nations sign a free trade agreement between themselves that covers most of their trade. Under these circumstances they can charge no tariffs on goods passing between them but maintain tariffs on goods coming from everywhere else in the world.
What tariffs do countries currently have?
While most countries have a range of tariff rates covering different goods imports, they also report an average external tariff to the WTO, which reflects the overall average tariff rate applied to all imports.
The US had an average external tariff of 3.3% in 2023.
That was slightly lower than the UK’s average tariff of 3.8%.
It was also below the European Union’s average tariff of 5% and China’s average tariff of 7.5%.
America’s average tariff was considerably lower than the average tariff of some of its other trading partners.
For instance, India’s average tariff was 17%, while South Korea’s was 13.4%.
America’s average tariff was lower than Mexico’s (6.8%) and Canada’s (3.8%), though trade agreements between the US and these countries mean that American exports to them are not subject to tariffs. The same is true for South Korea, with which the US has a free trade agreement
But, broadly speaking, it is legitimate for Trump to point out that some countries have a higher average tariff on imports than America’s.
And those tariffs push up the cost of many American exports to those countries, which might be said to disadvantage US exporters relative to exporters in those countries selling into the US.
However, whether this amounts to unfair trade that serves to harm the US is not clear cut.
Most economists judge that the costs of import tariffs are, ultimately, borne by households in the country that imposes them because they can mean that imported goods become more expensive.
This could mean nations with higher average external tariffs than the US would be penalizing their own consumers rather than Americans.
How might a reciprocal tariff work?
On 10 February, Trump suggested it could mean the US imposing the same average external tariff on imports from each individual nation as those countries impose.
He told reporters: “If they charge us, we charge them. If they’re at 25, we’re at 25. If they’re at 10, we’re at 10.”
This would likely break the MFN rules of the WTO, which require a nation to impose the same tariff on particular goods, regardless of where they came from.
If the US imposed, say, a tariff of 9.4% on all goods coming from Vietnam but 3.8% on all goods coming from the UK (the same as their own average external tariffs) that would be a breach of the rules.
If the US could show the targeted country was already itself breaching the organisation’s rules in some way it might be able to claim that specific retaliatory tariffs against that country are justified under WTO rules.
But simply imposing reciprocal tariffs as a general principle would likely constitute a breach.
What about reciprocal tariffs on individual goods?
Another possibility is that Trump could attempt to match not average national tariff rates, but tariff rates on individual items imposed by different countries.
For example, the EU imposes a 10% tariff on all imported cars from outside the bloc, including from America.
But the US imposes only a 2.5% tariff on imported cars, including those from the EU.
The US might decide to impose a 10% tariff on cars from the EU in order to level the playing field.
However, if it tried to match tariffs on every type of import with every different country this would be an extremely lengthy and complex exercise, given the vast range of goods involved in global trade and the distinct tariff regimes operated by the 166 members of the WTO.
Trump’s official memorandum outlining the policy said the administration’s reciprocal tariffs might also be designed to offset so called “non-tariff barriers” to trade such as other countries’ regulations, domestic subsidies, currency values and Value Added Taxes (VAT).
America does not charge VAT on goods, but most other nations do, including the UK.
This could make the exercise of designing the tariffs even more complex.
While economists agree that domestic regulations and subsidies can constitute important non-tariff barriers to trade, they insist that VAT does not fall into this category because it is levied on all goods sold domestically, and therefore does not lead to any relative cost disadvantage for imports from the US.
The WTO does not list VAT as a trade barrier.
Could US tariffs actually come down?
If Trump were serious about exactly matching individual tariffs from other nations it could also, in theory, require the US to lower some tariffs, not to raise them.
The US has higher tariffs on certain agricultural products than some of its trading partners.
For instance, the US currently imposes effective tariffs on many milk imports of more than 10%. But New Zealand, a major global milk producer, has 0% tariffs on its dairy imports.
The US milk tariffs are designed to protect US dairy farmers, including many in the swing state of Wisconsin, and lowering the tariff for milk exporters from New Zealand would likely face political resistance from politicians from that state.
Similarly, a genuinely reciprocal US tariff regime based on individual goods would pose challenges for the US automotive industry.
The US imposes a 25% tariff on imported trucks, including from the EU.
But the EU’s own tariff on imported trucks, including from the US, is only 10%.
So a US reciprocal tariff with the EU on imported trucks would, in theory, mean the US lowering its tariff here.
While a reciprocal tariff on EU cars might be welcomed by American automakers, a reciprocal tariff on EU trucks might not be.
However, Trump on Thursday made clear that some of his planned tariffs such as on steel and aluminium would be “over and above” his reciprocal tariffs, suggesting that true reciprocity on trade is not, in fact, his principal objective.
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And, now, another idea which has come forward:
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President Donald Trump’s sweeping tariffs have sent shockwaves across the globe, as he attempts to rein in the massive trade deficits the U.S. has with other nations.
While many economists have criticized Trump’s blunt approach — and markets have reacted poorly — the issue he’s targeting is far from trivial. While the president has since gone back and forth on levying the tariffs, legendary investor Warren Buffett has been sounding the alarm on America’s growing trade deficit for decades.
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Back in 2003, Buffett wrote a Fortune article with the striking title: “America’s Growing Trade Deficit Is Selling The Nation Out From Under Us. Here’s A Way To Fix The Problem — And We Need To Do It Now.” In it, he issued a stark warning about the long-term risks of persistent trade imbalances.
A trade deficit occurs when a country imports more than it exports. While that might sound harmless, Buffett warned that over time it leads to something far more serious: a steady transfer of national wealth to foreign hands.
To drive the point home, he introduced a parable involving two fictional islands: Thriftville, whose industrious citizens produce more than they consume and export the surplus, and Squanderville, whose inhabitants consume more than they produce, financing their excess consumption by issuing IOUs to Thriftville.
Over time, Thriftville accumulates substantial claims on Squanderville’s future output, leading to a scenario where Squanderville’s citizens must work harder just to repay the debt, effectively becoming economically subservient to Thriftville.
Buffett took the analogy further, warning that Thriftville’s citizens might lose faith in Squanderville’s IOUs.
“Just how good, they ask, are the IOUs of a shiftless island?” Buffett wrote.
“So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville.”
Buffett’s central concern was that the U.S. was behaving just like Squanderville — consuming far more than it produced, and becoming increasingly indebted to the rest of the world.
He warned that, at the trade deficit level at the time, foreign ownership of U.S. assets would “grow at about $500 billion per year.” As that ownership increases, he cautioned, so too will the net investment income flowing out of the country.
“That will leave us paying ever-increasing dividends and interest to the world rather than being a net receiver of them, as in the past,” he wrote. “We have entered the world of negative compounding — goodbye pleasure, hello pain.”
That was more than two decades ago. But Buffett’s warning still resonates today. By the end of 2024, the U.S. net international investment position had plunged to -$26.2 trillion — meaning foreign investors now own over $26 trillion more in U.S. assets than Americans own abroad.
Buffett’s market-based fix: a ‘tariff called by another name’
Buffett proposed a bold fix: a concept he calls the “Import Certificate” system — a market-based solution to reduce the U.S. trade deficit.
Here’s how it works:
Exporters earn certificates — For every dollar an American company earns by exporting goods or services, it receives an Import Certificate of equal value.
Importers must buy certificates — To bring goods into the U.S., importers must purchase these certificates from exporters.
This effectively limits total imports to the value of exports, achieving trade balance. It also creates a powerful financial incentive to export, since companies can sell their certificates on the open market to importers.
How does Buffett’s idea compare to the sweeping tariffs currently being implemented by Trump?
Buffett himself acknowledged that, “in truth,” his import certificate system is “a tariff called by another name.” But he was quick to note that it avoids the typical pitfalls of traditional tariffs — namely, industry favoritism, geopolitical tension, and the risk of escalating trade wars.
“This is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars,” he wrote. “This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.”
In other words, Buffett’s proposal is designed to nudge markets toward equilibrium — not to punish America’s trading partners.
Read more: Car insurance premiums could spike 8% by the end of 2025 — thanks to tariffs on car imports and auto parts from Canada and Mexico. But here’s how 2 minutes can save you hundreds of dollars right now
‘The best thing to do’ for everyday investors
While Buffett’s solution was never implemented, it’s clear that investors haven’t responded well to Trump’s version. Markets around the world have tumbled in the wake of his tariff announcements, with the sell-off wiping out trillions of dollars in global equity value.
And while headlines are dominated by recession fears and rising geopolitical tensions, Buffett has consistently emphasized one unwavering belief — his confidence in America.
“American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead,” Buffett wrote in his 2016 letter to shareholders.
That same optimism carried through in his 2022 letter:
“I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”
When it comes to individual investors, Buffett’s advice is as simple as it is enduring.
“In my view, for most people, the best thing to do is own the S&P 500 index fund,” he famously stated. This straightforward approach gives investors exposure to 500 of America’s largest companies across various industries, providing diversified exposure without the need for constant monitoring or active trading.
The beauty of this approach is its accessibility — anyone, regardless of wealth, can take advantage of it. Even small amounts can grow over time with tools like Acorns — a popular app that automatically invests your spare change.
Signing up for Acorns takes just minutes: simply link your cards, and Acorns will round up each purchase to the nearest dollar, investing the difference — your spare change — into a diversified portfolio. With Acorns, you can invest in an S&P 500 ETF with as little as $5 — and, if you sign up today, Acorns will add a $20 bonus to help you begin your investment journey.
While investing in an index fund is straightforward, some investors may want guidance on building a portfolio tailored to their specific financial goals. That’s where a professional can help.
With Advisor.com, you can find the best advisor for your needs — both in terms of what they can offer your finances, and what they’ll charge to work for you.
Advisor.com is a free service that helps you find a financial advisor who can co-create a plan to reach your financial goals. By matching you with a curated list of the best options for you from their database of thousands, you get a pre-screened financial advisor you can trust.
You can then set up a free, no obligation consultation to see if they’re the right fit for you.
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Nothing wrong with anyone’s opinion.
Take it for what’s its worth or just leave it on the table of ideas.
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