President Donald Trump has declared that tariffs would not only tackle America’s $36 trillion national debt but would also “MAKE AMERICA WEALTHY AGAIN.”
Comparing the strategy to the economic boom during the Second Industrial Revolution, Trump claimed tariffs, not income taxes, built the nation’s greatest wealth.
“The Tariffs, and Tariffs alone, created this vast wealth for our Country,” the president said. “Then we switched over to Income Tax. We were never so wealthy as during this period.”
His plan to tax imports as high as 20% (with even steeper rates for Chinese goods) is his solution to a spiraling debt crisis that shows no signs of slowing.
America’s debt hits $36 trillion
As of January 2025, the U.S. national debt sits at over $36 trillion, an increase of $4.7 trillion in just 18 months. That’s a jump from $31.5 trillion when the debt limit was suspended in June 2023. The debt held by the public has skyrocketed, now at $28.7 trillion as of the latest data that came out in November.
This massive debt has far-reaching consequences for the U.S. economy. Interest rates are climbing, borrowing costs are up, and the government’s ability to manage the crisis is shrinking. Treasury Secretary Janet Yellen has warned that the government could hit its borrowing limit as soon as January 14.
If Congress doesn’t raise or suspend the limit, a default could follow, wreaking havoc on the country’s credit rating and crashing global financial markets, from equities to cryptos.
To buy time, the Treasury Department has started implementing “extraordinary measures.” These include shuffling funds and temporarily reducing some intragovernmental debt. But these are short-term fixes. By mid-2025, they will be exhausted.
Adding to the drama, the federal government ran a $2 trillion deficit in 2024, thanks to weaker-than-expected tax revenue. Both individual and corporate tax collections are down, leaving the government with a massive funding gap. Trump’s critics think that his tariff and tax cut plans will only widen this deficit.
Trump’s tariff strategy and its risks
Trump’s plan centers on tariffs ranging from 10% to 20% on imports, with even higher rates on Chinese goods. For this guy, it’s a simple equation: tariffs protect American industries, bring in revenue, and shrink the trade deficit.
He points to the Second Industrial Revolution, from 1870 to 1914, as proof that tariffs work. Back then, tariffs accounted for a significant chunk of federal revenue.
Marc Andreessen, reflecting on that era, called it “perhaps the most fertile era for technology development and deployment in human history.” Trump sees this historical precedent as validation.
But the economy of 2025 isn’t the economy of 1870. Critics say the world has changed, and so have the risks. Tariffs will likely raise costs for businesses, who will pass those costs on to consumers. That means higher prices for everyday goods.
Economists estimate that a 10% tariff could add 0.3 to 1.2 percentage points to inflation, depending on how broadly it’s applied.
Inflation, which had started to cool after peaking at 9.1% in 2022, could flare up again. Projections show inflation rising to anywhere between 4% and 9% by 2026 if Trump’s policies are fully implemented.
Trump’s tax cuts could also pile onto the problem. Making them permanent could add $7.75 trillion to the national debt over the next decade. Higher interest rates, driven by inflation and tariffs, would make government borrowing even more expensive.
Economists warn of twin deficits
Literally all of Trump’s policies are raising red flags among economists. Many predict the return of “twin deficits,” where both the budget deficit and the trade deficit grow. This double hit would weaken national savings and increase reliance on foreign capital.
Supply chains could also take a beating. Tariffs, combined with Trump’s restrictive immigration policies, could create labor shortages. Fewer workers mean higher production costs, which would further drive up prices for consumers.
Sixteen Nobel Prize-winning economists have signed a letter opposing his plans. They point out that they won’t tame inflation and might even make it worse. There’s also the risk of retaliation.
Other countries could slap their own tariffs on U.S. goods, starting a trade war. That would hurt American exporters and destabilize the economy even more.
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