Explore the implications of Donald Trump’s presidency on tariffs and trade policies. Discover the function of the proposed “External Revenue Service” and its impact on US importers and foreign nations.
Image credit: Iskandar Zulkarnaen
With Donald Trump now in office, what can we expect on tariffs and trade? And what—apart from creating the erroneous impression that foreign countries, rather than US importers, pay tariffs—is the function of the proposed new “External Revenue Service?”
While some industry groups had speculated that Trump might invoke the International Emergency Economic Powers Act in order to impose tariffs on day one of his tenure, his administration has instead issued a memo (‘America First Trade Policy’) directing federal agencies to “investigate the causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures, such as a global supplemental tariff or other policies.”
The agencies will then recommend the best methods for “designing, building, and implementing an External Revenue Service to collect tariffs, duties, and other foreign trade-related revenues.”
The memo goes on to outline a proposed review of “unfair trade practices by other countries” and an assessment of the impact of the US Mexico-Canada Agreement (USMCA), a free trade agreement negotiated in Trump’s first term to replace the North American Free Trade Agreement (NAFTA). The US Trade Representative, in turn, will review trade agreements between the US and China and “recommend appropriate actions… up to and including the imposition of tariffs or other measures.”
While this is a more measured approach than the immediate imposition of blanket global tariffs Trump had pitched on the campaign trail, he made it clear in his inauguration speech that he was committed to tariffs, claiming that “President McKinley made our country very rich through tariffs” and that “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
In an Oval Office signing ceremony Monday evening, he went on to say that his administration was considering imposing 25% tariffs on Mexico and Canada as soon as February 1.
“We are establishing the External Revenue Service to collect all tariffs, duties, and revenues. It will be massive amounts of money pouring into our treasury, coming from foreign sources.” Donald Trump, inaugural address, Jan 20, 2025
Jeff Schott, a senior fellow at the Peterson Institute for International Economics, told AgFunderNews: “Setting an April deadline for reports and recommendations on tariff policies creates an effective window for preemptive negotiations with major US trading partners. But for Mexico and Canada, the policy directive was quickly amended to threaten 25% tariffs unless constructive action is taken this month to address US concerns about illegal immigration and smuggling fentanyl.”
External Revenue Service
The External Revenue Service, first pitched on a post on social media platform Truth Social last week, was dismissed by Senator Ron Wyden (D-OR) as a “silly rebranding” exercise designed to obscure the fact that American businesses, and in turn consumers, pay for tariffs, not “foreign sources.”
Economists, meanwhile, observed that there is already a government agency—Customs and Border Protection (CBP)—set up to collect tariffs.
Speaking at a webinar hosted by the Consumer Brands Association (CBA) last week, CBA VP campaigns & special projects Tom Madrecki noted: “CBP, as directed by Treasury, already collects tariff revenue, so I don’t know what a new external revenue service will be doing apart from moving desks and relocating IT.”
‘You can change the tax code, but you’re not moving the equator’
Rohit Kumar, national tax office co-leader at Pwc, added: “I think the challenge will be not in the collecting of tariffs…. But whether they have the capacity to absorb the volume of taxpayers who are going to be coming and saying, ‘I need an exception for X, Y or Z reason.’
“Tariffs at the scale that [Trump] is talking about are going to yield a small battalion of taxpayers and importers who, for one reason or another, think they have an argument for why they should be treated differently.
“And some of them may have a totally legitimate argument, such as, ‘I’m importing bananas, or cinnamon; they’re not going to grow here…’ You can change the tax code, but you’re not moving the equator, right? There are certain things that only exist in certain places in the world by dint of geography or climate.
“But just getting on their radar screen and having a process for adjudicating those claims… that’s where you’re going to run into staffing capacity issues.”
“As agencies conduct their reviews and report back on recommendations, we encourage the administration to target tariffs toward accomplishing its national security goals and geopolitical objectives, rather than taking a less nuanced approach that would unnecessarily increase costs on products and ingredients like spices, cocoa, coffee, certain fruits, etc. that simply cannot be grown or produced in the US.” Tom Madrecki, VP campaigns & special projects, Consumer Brands Association
Confusion is a strategy
During his presidential campaign, Trump proposed plans to impose an across-the-board tariff of 10-20% on goods coming into the US and a tariff of 60% on goods imported from China. He also threatened a 25% tariff on goods from Canada and Mexico, which are both party to the USCMA.
But is it still unclear as to which, if any, of these proposals he plans to put into action, said Madrecki. “Some of this [lack of clarity] is by design. So the way that the Trump team works is that no information, or misinformation, at least as it relates to sharing of media reports or what’s leaked or what isn’t, that creates swirl, it creates drama, it creates people not exactly knowing. And when you don’t know something, that is a point of leverage on the other side.”
But he added: “Our position at the CBA [which represents large consumer packaged goods companies] has consistently been that universal tariffs don’t make sense to address the President’s economic goals in terms of lowering inflation. Why would you impose tariffs on products that aren’t even grown here?
“We’ve also tried to build some political arguments that Trump voters, when we’ve polled them, overwhelmingly reject the notion that there should be universal tariffs. They support tariffs that advance national security interests; they support tariffs that advance an economic agenda or a geopolitical agenda… but they draw the line, frankly, at when it comes to their grocery bill.”
What happens next?
“Everyone is just trying to put themselves in the best possible situation to avoid tariffs, because they would be… dramatically destabilizing in terms of the current USMCA free trade agreement,” added Madrecki. “But at the same time, Trump wants to renegotiate that agreement. Basically, blowing up the agreement is one of the easier ways of coming back to the negotiating table and saying, I want a better deal.
“I just don’t see what he actually gains by instituting the tariff so much as he does gain by threatening the tariff.”
Kumar added: “The Canada Mexico stuff is not about divorcing the US economy from the Canadian and Mexican economies. That’s just not plausible and it’s not in our national security interests. We are blessed to have a friendly neighbor to the north, a friendly neighbor to the south, and two oceans east and west, that provides us a huge national security advantage that a lot of the jurisdictions don’t have.”
As to how the tariffs will be instituted, “There are too many free traders left amongst House and Senate Republicans to vote for tariffs at scale,” predicted Kumar. “So these are going to happen by the President’s statutorily granted authority.”
Donald Trump tariffs, trade policy, External Revenue Service, US importers, international trade, economic impact, trade relations, foreign countries, tariffs function
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Further reading
Trump’s tariffs won’t help US agrifood industry, says ex-Congressman Charlie Dent: ‘There are no winners’
This is used with permission and our collaboration with AFN and AgFunder!
