On January 15, 2025, President-elect Donald Trump announced plans for a new government agency called the External Revenue Service (ERS), which is set to begin operations on January 20, 2025. This agency aims to centralize the collection of tariffs and duties from importers, a responsibility currently managed by U.S. Customs and Border Protection (CBP). Trump criticized the existing Internal Revenue Service (IRS), claiming that Americans are overtaxed while foreign nations benefit from favorable trade agreements [4eca0ad6].
The ERS is expected to implement a range of tariffs, including a 10% to 20% tariff on all imports, a 25% duty on goods from Canada and Mexico, and a substantial 60% tariff on imports from China. Trump has indicated that these tariffs will be enforced particularly if Canada and Mexico do not take action to address issues related to drug trafficking and illegal immigration [4eca0ad6]. However, economists warn that the burden of these tariffs will ultimately fall on U.S. importers rather than foreign sources, potentially leading to increased prices for American consumers [4eca0ad6].
In a notable shift in policy, Trump's administration is also considering investment fees on foreign companies accessing the U.S. market, a proposal put forth by Steve Bannon. This suggests a move from encouraging foreign investments to treating market access as a privilege, which could further complicate international trade relations [c97dbb6b]. Trump's economic team, including former Treasury Secretary Steven Mnuchin, supports the use of punitive tariffs as negotiation tools, indicating a more aggressive stance in trade discussions [c97dbb6b].
Critics of the ERS, including U.S. Treasury Secretary Janet Yellen, argue that the agency may duplicate existing efforts by CBP and could lead to increased costs for consumers. Concerns have also been raised about potential retaliatory measures from trading partners and the impact on U.S. competitiveness in global markets [0810ab65]. Estimates from the Tax Foundation suggest that a universal 20% tariff could generate approximately $4.5 trillion over the next decade; however, realistic projections lower this figure to around $3.3 trillion due to potential economic impacts [4eca0ad6]. Supporters of the ERS, including economist EJ Antoni, argue that shifting from income taxes to tariffs could bolster domestic production and reduce reliance on foreign goods, aligning with a protectionist economic policy. Conversely, critics, including Doug Holtz-Eakin, warn that such tariffs could push Canada into recession and lead to a multi-trillion-dollar tax hike on American families, resulting in higher consumer prices and inefficiencies in the market [4eca0ad6].
Scott Lincicome has criticized the agency's name as misleading, emphasizing that tariffs are essentially taxes on U.S. importers, which could harm the economy [4eca0ad6]. Major institutions predict a potential GDP decrease of 3.61% due to high tariffs, raising concerns about long-term economic impacts [c97dbb6b]. The IRS has faced significant funding cuts, losing $20 billion, which raises concerns about tax fairness and the effectiveness of revenue collection. The Treasury Department has also reported a deficit exceeding $2 trillion for the calendar year 2024, with a budget gap of nearly $711 billion for the first three months of fiscal year 2025 [4eca0ad6]. As Trump's administration prepares to implement these changes, the specifics of the ERS's operation remain unclear, and ongoing debate is expected in the coming weeks. Voters and economists alike will be closely monitoring how these policies will affect households and the broader economic landscape in the coming months [0810ab65].