Pundits sometimes claim that US presidential campaigns are devoid of big, consequential policy ideas. That’s clearly not true this time around. Arguably the most profound policy change being proposed in this campaign is former President Donald Trump’s big idea to broadly raise tariffs on imported goods, possibly to levels the US has not seen in many decades.

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In a series of campaign remarks, Trump has laid out the contours of ideas to raise tariffs back to historical levels. He has suggested broad tariffs on all imports from trading partners that could range from 10% to 20%, and has raised the possibility of a tariff on all Chinese imports of 60%. In remarks in September, Trump floated the idea of a 200% tariff on Mexican imports. The Budget Lab simulated 12 illustrative scenarios that were various combinations of these different rates, and which assumed retaliation and no retaliation from the targeted countries.

Tariffs are, first and foremost, a tax, and Trump’s proposals would indeed raise meaningful revenue that could be used to shrink the federal budget deficit, which totaled $1.8 trillion in fiscal year 2024 ended Sept. 30. Under the most common interpretation of Trump’s proposal — a 10% tariff on all goods imports and a 60% tariff on Chinese goods imports — the US raises $2.6 trillion over 10 years if other countries do not retaliate. Dial the non-China tariffs up to 20% and revenues rise by $4.4 trillion.

But there are several asterisks when it comes to tariffs as a revenue raiser. First, other countries almost certainly would retaliate against the US, and do so almost immediately, as, for example, China did within days when Trump imposed Section 301 tariffs against them in 2018. At The Budget Lab, I found that retaliation leads to the US raising less of its own tariff revenue: 12% to 26% less under each proposal if other countries retaliated. That means the 10% broad/60% China proposal would only raise $2.2 trillion if there was retaliation, and the 20%/60% proposal $3.4 trillion.

Second, the conventional estimates above assume the economy stays fixed in size. In reality, past evidence along with The Budget Lab’s modeling suggest the economy would likely shrink in response to the tariffs, as whatever positive reshoring effects resulting from the tariffs would be more than overwhelmed by rising input costs, falling investment, and lower consumer spending and real incomes. Depending on the scenario, the level of real GDP would decline by 0.5% to 1.4% in the medium-term, which is the equivalent of shaving between $120 billion and $325 billion off the economy today. And a smaller economy means even less tax revenue raised. Using rules-of-thumb from the Congressional Budget Office, this range of GDP effects translates into $400 billion to $1 trillion less dynamic revenue than the conventional estimates. So, the fiscal upside would in fact be even smaller.

Third, prices would rise and real household incomes would decline in response to the tariffs. While a tenth of all consumer spending is on imports, a quarter of consumer goods spending is imported, so the tariffs would pinch households considerably. Consumers would face price increases of 1.2% to 5.1% depending on the specific proposal. That’s like suddenly getting between seven months and 2.5 years’ worth of normal inflation. For the average household, these price increases would lower the purchasing power of their annual income by between $1,900 and $7,600 in 2023 dollars. And since there is evidence that tariffs burden lower-income families more than upper-income families, the squeeze would be particularly severe for households that can least afford them.

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Trump’s tariff proposal could be the biggest shift in US tax and trade policy in generations, and it could raise trillions of dollars in revenue. But as The Budget Lab’s findings show, the downside to the economy is potentially enormous. Pundits complained about not getting big policies; now they have an expensive one to talk about.