Trump’s Bold Move: A New Agency for Tariffs and Foreign Revenues
On January 17, 2025, U.S. President-elect Donald Trump took to social media to announce plans for the creation of the External Revenue Service, a new government agency aimed at overseeing the collection of tariffs, taxes, and other revenues from foreign businesses and entities. Trump is expected to officially reveal the initiative on January 20, during his second-term inauguration.
The proposed agency is part of Trump’s ongoing efforts to overhaul the U.S. trade policy, which he argues has previously undermined the American economy while allowing global growth to flourish. Trump’s proposal comes on the heels of his repeated criticism of past trade agreements that he believes have disproportionately benefited other nations at the expense of U.S. workers and industries.
A Shift Toward Aggressive Trade Measures
The establishment of the ERS signals a sharp pivot in U.S. trade policy. Trump has long advocated for a more aggressive stance on tariffs, particularly on imports. In his announcement, he emphasized the need for stronger measures to curb the flow of foreign goods into the U.S. market. He previously suggested imposing tariffs of 10% to 20% on all imports, a move that experts warn could have significant consequences for U.S. consumers and the broader economy.
While Trump’s supporters see these tariffs as a necessary step to protect American industries from unfair foreign competition, critics argue that they could increase consumer prices, stoke inflation, and disrupt existing trade relationships. The establishment of the ERS is expected to play a central role in enforcing these tariffs and ensuring that foreign entities comply with U.S. tax obligations.
The Critics Speak: Is a New Agency Necessary?
Democratic Congressman Richard Neal was quick to dismiss Trump’s proposal as vague and a repetition of past, unfulfilled promises. Critics argue that the creation of a new agency may be redundant, given that U.S. Customs and Border Protection is already responsible for collecting tariffs at U.S. borders. CBP's tariff collection operations contribute less than 2% of the federal revenue, leading some to question the effectiveness and necessity of creating the ERS.
While the ERS is positioned as a means to centralize tariff collection under one roof, the additional administrative overhead could raise concerns about inefficiency and redundancy. Moreover, some worry that a new agency may simply add to the complexities of the already-established trade enforcement mechanisms.
Potential Impacts on the U.S. Dollar and Global Trade
As the ERS announcement reverberates across the markets, analysts are closely monitoring the potential economic effects of Trump's proposed tariff policies. Goldman Sachs analysts weighed in on the possible impacts, forecasting that the introduction of new tariffs could cause the U.S. dollar to rally. On January 13, the U.S. dollar index rose above the 110 mark, its highest level since November 2022. Strategists at Goldman Sachs, including Kamakshya Trivedi, have predicted a 5% rise in the dollar over the next year as markets factor in the realization of new tariffs.
However, the dollar's strength also comes with concerns. A stronger dollar could make U.S. exports more expensive and dampen demand for American goods overseas, potentially hurting U.S. manufacturers who rely on foreign markets. Moreover, higher tariffs could disrupt existing trade flows and increase costs for U.S. companies that depend on imports for manufacturing and production.
Market Caution and Consumer Worries
Economic experts are sounding alarms about the potential negative consequences of Trump’s tariff policies. The main concern is that higher tariffs could burden American consumers, who would ultimately bear the costs of imported goods through higher prices. Analysts have warned that such a shift in policy could disrupt the current trade balance, creating ripple effects that impact not only U.S. businesses but also global supply chains.
Despite the backing from Wall Street leaders, markets remain cautious about the long-term effects of Trump’s trade policies. Investors are closely watching how the ERS will function in practice and whether it will be able to effectively collect the proposed tariffs without introducing excessive bureaucratic hurdles.
Looking Ahead: A Turning Point in U.S. Trade Policy?
With the inauguration of his second term, Donald Trump’s administration is set to usher in significant changes to U.S. trade policy. The introduction of the ERS represents a pivotal moment in the Trump administration’s ongoing push to reshape the global trade landscape. While the immediate effects of the new agency and proposed tariffs are still unclear, the coming months will likely reveal how these measures impact not only U.S. businesses and consumers but also global trade dynamics.
As Trump prepares to formalize the ERS on January 20, all eyes will be on how this new agency will navigate the complex world of tariffs, international trade agreements, and foreign economic relations. The path forward remains uncertain, but it’s clear that the U.S. is gearing up for a much more interventionist approach to global trade.
