Despite ‘pause’ U.S. tariffs at historically high levels

President Donald Trump imposed — and then quickly paused — historically large tariffs on nearly 90 countries on April 9.

But despite the “pause” of those country-specific tariffs (except on China, Canada and Mexico — the U.S.’s three largest trade partners) import duties ordered by Trump in the first few months of his second term raised the U.S.’s nominal average tariff rate to the highest level since 1909 — prior to the creation of the current federal income tax.

Trump reiterated his desire to replace the income tax code with tariffs in a Tax Day interview with Fox News.

"There's a real chance," Trump said, of supplanting income tax revenues with tariffs to fund the federal government. "There is a chance that the money from tariffs could be so great that it would replace. You know, in the old days, about 1870 to 1913, the tariffs were the only form of money.”

That aspiration may be overly ambitious. Customs and Border Protection told CNBC that the agency has collected $21 billion from tariffs imposed by Trump during this term. But the president’s public and private commitment to using tariff revenue to supplant income tax revenue will impact the major tax and economic policy debate ongoing among congressional Republicans, as well as the overall economy, as much of his significant trade policy is already in effect. The tariff actions taken by Trump represent the largest tax increase since 1993 — larger than high-profile income tax increases that occurred during the Obama and George H.W. Bush administrations — as measured as a share of the economy, according to an analysis by the Tax Foundation. Political and economic fallout from the tariff hikes could affect Republican priorities in the upcoming tax legislation and increase pressure to deliver something popular with voters.

The Federal Reserve and private-sector economists continue to warn about heightened economic risks due to the disruption and uncertainty caused by these new tariffs — and additional ones promised by the administration.

“The tariffs are larger than forecasters expected, certainly larger than we expected, even in our upside case,” Federal Reserve Chair Jerome Powell said in an interview on April 16. “The [Depression-era] Smoot-Hawley tariffs were actually not this large and they were 95 years ago, so there isn’t a modern experience of how to think about this,” he added, speaking to economy-wide uncertainty driven by the Trump administration’s rebalancing of trade policy.

“The administration is implementing significant policy changes, and particularly trade now, is the focus, and the effects of that are likely to move us away from our goals [of maximum employment and stable prices],  Unemployment is likely to go up as the economy slows, in all likelihood, and inflation is likely to go up as tariffs their way, and some part of those tariffs come to be paid by the public. So that’s the strong likelihood,” Powell continued.

Early data and surveys of businesses already show economic impact around uncertainty around a reversal of a century of U.S. trade policy, if not the underlying tariffs themselves. The Philadelphia Fed’s April 2025 manufacturing index (survey responses from April 7 to April 14) reported the sharpest drop in new orders since April 2020, the first full month of the covid-19 pandemic. The New York Fed’s Empire State Manufacturing Survey showed a second straight month of contracting activity, following a sharp initial drop in March. 

“Firms expect conditions to worsen in the months ahead — a level of pessimism that has only occurred a handful of times in the history of the survey,” the April edition of the ESMS reads.

For more information on how businesses can prepare, and a comprehensive timeline of tariff actions to date, see also our report: A new tariff paradigm.

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