Written by: Thomas Jacobs.

In a bold and unconventional move, President-elect Donald Trump has announced the creation of a new government department that aims to focus on collecting revenue from foreign countries. The new agency, called the External Revenue Service (ERS), would work similarly to the Internal Revenue Service (IRS) that manages tax payments from U.S. citizens. Trump has made it clear that this new department will be tasked with collecting tariffs, duties, and any revenue generated from foreign trade. The initiative, set to officially launch on the first day of his second term, could significantly alter the landscape of U.S. foreign trade policy.

Trump’s announcement came via a social media message, where he expressed frustration over the current system. He believes that the U.S. has been unfairly burdened by trade agreements that have allowed foreign nations to profit at the expense of American taxpayers. According to Trump, it’s time for a change.

“We’ve relied on taxing our Great People using the IRS for too long. Through weak trade deals, the American economy has grown, but we’ve been the ones footing the bill. It’s time for that to change,” Trump said. His vision is to shift the financial burden, at least partially, onto foreign countries that profit from trade with the U.S.

The External Revenue Service: What Does it Mean for Global Trade?

The idea behind the External Revenue Service is simple: foreign governments and businesses benefiting from trade with the U.S. would be required to contribute a portion of that profit back to the American economy through tariffs and duties. Trump sees this as a way to ensure that the U.S. is no longer the only nation footing the bill for global economic growth.

But how might this new department actually work in practice? Think of it like this: a small U.S.-based company that imports goods from overseas. Right now, this company would pay taxes to the IRS on the profits it makes. But under the new system, foreign businesses that export goods to the U.S. could face higher tariffs, creating a revenue stream for the U.S. government.

In theory, this would create a kind of financial “feedback loop,” with foreign countries contributing more to the U.S. economy simply by engaging in trade. For example, if a car manufacturer in Japan exports vehicles to the U.S., the Japanese government might be required to pay a percentage of those profits to the U.S. government as a tariff or duty, much like the U.S. imposes taxes on foreign products coming into the country.

Of course, the feasibility of such an approach raises a number of questions. How would the ERS handle disputes between foreign governments? Would it result in higher costs for consumers? And would the plan lead to retaliation in the form of trade wars?

Critics Speak Out: The Potential Pitfalls of the Plan

Not everyone is on board with Trump’s plan. Several critics have voiced concerns about the potential negative consequences of implementing such a system. One of the biggest concerns is the possibility of retaliatory tariffs from foreign governments. Countries that are hit with high tariffs might retaliate by imposing their own tariffs on U.S. exports, which could result in a trade war that ultimately hurts American businesses and consumers.

President Claudia Sheinbaum of Mexico, a key U.S. trade partner, expressed her concerns about the potential impact of such tariffs on the Mexican economy. In a letter, Sheinbaum pointed out that several major U.S. corporations, including General Motors, Stellantis, and Ford, have operations in Mexico. She argued that imposing tariffs on Mexican goods could hurt these businesses and lead to job losses and higher inflation in both countries.

Other economists warn that tariffs often end up being passed along to consumers in the form of higher prices. While Trump has positioned the creation of the ERS as a way to make foreign countries “pay their fair share,” critics point out that it is often American consumers who bear the brunt of the added costs. Heather Long, a columnist for the Washington Post, argued that although the plan may sound like clever marketing, it doesn’t change the fact that U.S. consumers will ultimately be the ones paying higher prices for goods imported from foreign countries.

In essence, critics argue that while the ERS could bring in additional revenue, it might not have the intended positive impact on the economy. The result could be higher costs for goods, fewer job opportunities in industries that rely on foreign trade, and strained relationships with key trade partners.

A Bold, but Risky Move

There’s no denying that Trump’s plan for the External Revenue Service is a bold one. It aims to shift the financial burden of global trade onto foreign governments, in the hope that it will bring more money into the U.S. economy. If successful, it could change the way the U.S. engages in trade, benefiting American taxpayers and businesses that rely on foreign imports.

However, the road ahead is far from certain. The creation of the ERS could result in trade disputes, higher prices for consumers, and potential retaliation from foreign governments. While it’s easy to see the appeal of a policy that seeks to “level the playing field” in global trade, it’s crucial to consider the potential long-term effects on both the U.S. economy and international relations.

In the end, whether or not the External Revenue Service is a good idea depends on how the plan is implemented and how foreign governments react. If it leads to trade wars or higher prices for consumers, the policy could backfire. On the other hand, if it succeeds in generating additional revenue for the U.S. while maintaining stable trade relationships, it could be seen as a major success. Time will tell.

Our Take

As much as this idea might sound appealing on the surface, it’s important to remember that the real-world consequences of imposing tariffs on foreign governments can be severe. History has shown us time and time again that tariffs often lead to retaliatory measures that hurt American businesses and consumers.

The concept of the External Revenue Service might be a clever marketing tactic, but it ignores the reality that the U.S. could suffer economically if other nations respond with their own tariffs. At the end of the day, the American people are the ones who will pay the price in higher costs for everyday goods. While it’s tempting to think that foreign governments should pay more, it’s crucial to consider the bigger picture and the unintended consequences that might arise from such a policy.

Trade wars rarely benefit anyone, and it’s hard to see how this move will lead to lasting prosperity for the American people. Instead, it could create more problems than it solves, ultimately hurting the very people it’s meant to help.