Trump to Launch ‘External Revenue Service’ to Tax Imports

Donald Trump is back with a headline-grabbing plan, promising to shake up trade policies as he prepares to return to the White House. His proposal? A brand-new agency, the External Revenue Service (ERS), is designed to collect tariffs and revenues from foreign sources. With its “birth date” slated for January 20, 2025—his first day in office—Trump vows the ERS will shift the financial burden of trade away from Americans. But is this a savvy solution or a recipe for economic turmoil? Let’s dive in.

“Tax the World, Not Americans”

In a Truth Social post, Trump declared, “We will begin charging those that make money off of us with trade, and they will start paying, FINALLY, their fair share.” His frustration with what he calls "soft and weak" trade agreements has led to the creation of the ERS, a counterpart to the IRS. Trump’s vision? Use tariffs to fund government operations instead of relying heavily on income taxes. The idea harks back to pre-20th-century America when tariffs were a primary source of government revenue. Steve Bannon, Trump’s former adviser, reinforced this sentiment, stating, “America’s behind the golden door. This market is the most robust in the world, and access to it shouldn’t come for free.”

But there’s a bigger picture here. Trump has hinted that tariff revenue could fund his proposed tax cuts, which he championed during his campaign. Critics argue this approach might create a “robbing Peter to pay Paul” situation, with higher tariffs fueling inflation and negating the benefits of lower taxes.

Bureaucracy or Breakthrough?

Details about the ERS remain fuzzy. Trump hasn’t clarified whether it will replace existing revenue-collection systems like the U.S. Customs and Border Protection (CBP) or if it will simply supplement them. Questions also loom over its structure and efficiency, especially as it contradicts Trump’s own goal of streamlining government through the Department of Government Efficiency (DOGE), reportedly spearheaded by Elon Musk and Vivek Ramaswamy.

While Trump envisions tariffs replacing income taxes, private economists question whether this is realistic. The IRS collected $4.69 trillion in fiscal 2023—far more than what tariffs could generate, even under optimistic scenarios. And let’s not forget: “Too many cooks spoil the broth.” Adding another agency could create more red tape instead of cutting it.

The Economic Gamble

Replacing income taxes with tariffs may sound appealing, but can it work? Private economists aren’t convinced.

• Revenue Projections: The Tax Foundation estimates that a universal 20% tariff could generate $4.5 trillion over a decade. However, negative economic effects could shrink that figure to $3.3 trillion—barely scratching the surface of the $4.69 trillion collected by the IRS in fiscal 2023 alone.
• Trade Fallout: Trump’s proposed tariffs include a 10% universal tariff on all imports, 25% on Canadian and Mexican goods, and a whopping 60% on Chinese products. Economists warn these measures could drive up consumer prices and provoke retaliatory tariffs, disrupting global trade flows.

Democratic Senator Ron Wyden minced no words, calling the ERS plan “a multi-trillion-dollar tax hike on American families.” Critics argue the real burden of tariffs would fall on U.S. consumers and businesses, who would face higher costs for imported goods.

Global Reactions and Retaliation

Trump’s aggressive tariff strategy isn’t just a domestic concern—it’s already raising eyebrows abroad.

• China: With proposed tariffs of 60%, Trump aims to pressure Beijing on trade imbalances. But as JPMorgan’s Jahangir Aziz notes, this move could escalate tensions and destabilize global markets.
• Canada and Mexico: Trump’s plan includes a 25% tariff on imports from these neighbors unless they address issues like drug trafficking and migration. Trade relations could take a hit, impacting sectors like automotive and agriculture.

Ruchir Sharma of Rockefeller International highlighted an ironic twist: During Trump’s first term, despite his hardline stance, the Chinese stock market outperformed many global indices. It’s a reminder that economic policies rarely unfold as planned.

How Professionals Will Tackle the ERS

The creation of the External Revenue Service could reshape the professional landscape, driving demand for tariff advisory, compliance expertise, and supply chain optimization. Professionals may need to adapt their business models, obtain updated certifications, and focus on mitigating client costs amid rising tariffs. Trade groups and associations will likely offer new resources to help navigate regulatory changes, creating opportunities for innovation while adding complexity to day-to-day operations.

Will It Fly or Flop?

While the ERS taps into Trump’s “America First” ethos, it’s a gamble with high stakes for the U.S. economy and its global standing. The idea of making foreign nations “pay their fair share” is sure to appeal to his base, but the practical implications remain murky. With critics predicting inflation, trade retaliation, and economic volatility, the ERS might end up creating more problems than it solves. For now, all eyes are on January 20, 2025, to see if Trump’s bold plan will make waves or just make headlines. One thing’s for sure: this isn’t your grandpa’s tax policy. Stay in the know—subscribe now and keep your inbox smarter, not cluttered!