New reciprocal, car, drug, and semiconductor tariff threats

President Donald Trump continued to tease more tariffs this week, telling the press during a media availability on Feb. 18 that he would introduce 25% (or more) ad valorem tariffs on automobiles, semiconductors and pharmaceuticals this year.

Though Trump could use many, if not most, of his tariff threats as leverage in negotiations, he and senior advisors have continued his campaign rhetoric by publicly pushing tariffs and taxes on foreign companies conducting business in the U.S. as a way to offset lower domestic taxes and federal spending.

“We’re the big piggy bank that everyone wants to play in,” Trump said during a Feb. 19 speech. In a Feb. 20 social media post, he continued to tout tariffs, writing, “BALANCE BUDGET NOW??? LETS [sic] GIVE IT A SHOT. LOTS OF MONEY COMING IN FROM TARIFFS. DO IT!”

In a Feb. 19 television appearance, newly confirmed Commerce Secretary Howard Lutnick, one of the Trump administration’s top advisors on trade policy, said that Trump hoped to “abolish” the IRS and let tariffs and taxes on foreign companies pay for the federal budget.

“His goal is to abolish the IRS and let all the outsiders pay,” Lutnick said. “This is going to end under Donald Trump, and those taxes are going to be paid, and Americans’ tax rates are going to come down.” Lutnick touted cruise ships, oil container ships and alcohol imports as specific areas where the U.S. government should impose higher tax and tariff more. “It’s all basically a tax scam, and we are on it, and we are going to fix it,” Lutnick continued, before promising lower consumer loan and mortgage interest rates as a result.

Though completely ending the agency in favor of tariff and foreign tax collection is likely more rhetorical than aspirational, the Trump administration terminated approximately 6,700 IRS probationary employees on Feb. 20, according to multiple reports, as part of the broader effort to downsize federal employment. Many of those employees were hired in large part through an expansion of the IRS that occurred during the Biden administration.

Several senior economic policy officials within the administration, including Treasury Secretary Scott Bessent, U.S. Trade Representative nominee Jamieson Greer and National Economic Council Director Kevin Hassett, have echoed similar rhetoric, suggesting that increased tariffs could supplement the more traditional income tax code. congressional Republicans may unofficially include tariff revenue as an offset in the complicated process they’re using to pass substantial tax and fiscal legislation along party lines.

“We expect that the tariff revenue is actually going to make it much easier for Republicans to pass a bill, and that was the president’s plan all along,” Hassett said at a Feb. 20 White House press briefing. 

No independent expert expects tariffs to bring in enough revenue to fully offset continuing current tax rates due to expire at the end of this year under the Tax Cuts and Jobs Act. But revenues from tariffs could be indirectly counted as a partial pay-for to continue TCJA policies, suggesting at least some could stay in place long-term. A preliminary Congressional Budget Office estimate for the tariffs Trump campaigned on — 10% to 20% across the board and 60% on Chinese products — found they could raise a maximum revenue of $2.9 trillion over 10 years. However, the CBO also found they would increase inflation and significantly decrease economic growth, which could affect the overall federal revenue impact.

Though he has yet to follow through on exact tariffs that he promised during the presidential campaign — except for the additional 10% tariffs on Chinese goods enacted earlier this month (but still well short of his campaign proposal), Trump continued to roll out a series of planned tariffs that could have broad economic impacts if enacted. 

Trump specifically mentioned April 2 as the expected rollout for the auto tariffs, though it was unclear whether he meant enactment or publication of the specific proposal. Thanks to broad tariff powers granted to the presidency over decades, Trump can enact tariffs unilaterally, but most tariffs require an investigatory period. The U.S. already imposes 25% tariffs commercial vehicles and trucks imported from countries outside of the U.S.-Mexico-Canada Free Trade Agreement under the Trade Expansion Act of 1962 and the Tariff Act of 1930. However, it’s unclear from Trump’s remarks whether he has plans to expand on those existing tariffs immediately or initiate a formal investigation. An investigation would take several months, potentially giving businesses more time to plan, and countries time to negotiate.

The possible sectoral tariffs follow three other major tariff developments:

• Reciprocal Plan: On Feb. 13, Trump issued a cabinet-level memorandum directing his administration to examine other countries’ tariffs, VATs, digital service taxes and other economic trade practices that impede market access or fair competition, with plans for proposed remedies starting this spring. If Trump were to activate a rarely used law specifically meant to give the president power to reciprocate tariff amounts through executive order.  
• Steel and aluminum: Trump ordered 25% tariffs on steel and aluminum imports, raising existing duties on aluminum and undoing country-by-country exemptions that his first administration negotiated.
• Canada, Mexico, China: In early February, Trump ordered 25% tariffs on most Mexican and Canadian imports (Canadian energy would be taxed at a 10%) but delayed the effectiveness until March 4, in theory allowing additional negotiation to further delay or permanently postpone the tariff threat. Another tariff in that grouping, an additional 10% duty on Chinese imports, took effect on Feb. 4.

How the tariff rhetoric is balanced with international and domestic dealmaking will be hugely consequential for the domestic tax debate this year, as well as businesses and the U.S. economy in 2025 and beyond.

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