President Trump has announced sweeping tariffs against most of the United States’ leading trading partners. Many nations have indicated that they will retaliate (see running updates compiled by the Global Trade Alert), and international trade flows may be severely disrupted.
There is, however, an important tariff exception for federal procurement. When foreign goods are imported for sale to the U.S. government, if proper procedures are followed, the goods may be free from tariffs, per longstanding U.S. regulations. For information on U.S. agencies’ exemptions from tariffs in their procurements, see the analysis compiled here.
Could tariffs replace income taxes? One of the open questions surrounding the Trump tariffs is whether tariffs, if raised high enough, could replace U.S. income taxes. Economists Simon Evenett and Marc-Andreas Muendler concluded the answer is no: “Until the late 19th century, states raised most of their government revenues from import tariffs. Could the practice work today? A side effect of taxes is that they discourage the economic activity that they are assessed on. Tariffs are taxes on imports and no different: they shrink trade. [In their study they] allow tariff revenues to change an economy’s savings and therefore the trade balance, as the U.S. administration intends. Then the displacement effect of import tariffs is so strong that tariff revenues cannot plausibly fund more than a few days of annual U.S. government spending.“
Tariffs on U.S. Services Exports: Another open issue is whether U.S. services — which normally enjoy a substantial trade surplus — might be subject to reciprocal and severe tariffs abroad. A study published by Simon Evenett and Fernando Martín Espejo shows that the U.S. Trade Representative’s formula for reciprocal tariffs, if turned about and applied by foreign nations to U.S. services exports, might result in much steeper tariffs against U.S.-based firms, if the practical barriers to imposing tariffs on services could be resolved.
On February 21, 2025, GW Law’s Government Procurement Law Program held a webinar on rising U.S. and EU protectionism, which discussed recent caselaw in the EU Court of Justice and the Trump tariffs.
