President Donald Trump made headlines when he announced an External Revenue Service (ERS) agency to collect tariff incomes. The announcement sparked a heated debate among trade experts, economists, and business leaders. But, what exactly would be the purpose of the agency? Well, we can take the words spoken from his inauguration address as an answer:

Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens. For this purpose, we are establishing the External Revenue Service to collect all tariffs, duties, and revenues.

In simple terms, President Trump says he wants to replace the revenue that fund federal programs from citizens to external sources. Trump’s trade advisor Peter Navarro reiterated this goal in an interview with POLITICO, saying that this will “structurally shift” the American economy. 

However, its broad mandate and ambiguous scope raise concerns about bureaucratic inefficiency, regulatory overreach, and unintended economic consequences. The lack of clear guidelines on how the ERS will interact with existing regulatory frameworks raises alarm. The executive order for which President Trump signed kicked the due date to April 1. (Writer’s comment: is this just a global-wide April fools’ joke?)

A Solution in Search of a Problem?

The ERS is a possible chip in Donald Trump’s proposed “America First” policy agenda. Will other countries call the bluff? Skeptics question whether the ERS will truly provide enough revenue to replace what usually comes in from the income tax. Over the past 70 years, tariffs have raised about 2% of federal revenue. 

The vice president of the conservative think tank Tax Foundation told Reuters that it’s “highly unusual and unprecedented” to use tariffs for revenue. Additionally, he notes that these plans make little long-term sense because of how consumers might react to them. 

The current use of tariffs could give us a clue of how President Trump plans to use the ERS. The White House released a statement that announced tariffs on Canada, Mexico, and China. While he may receive revenue from tariffs, the impacts will be felt by the American consumer, due to the laws of supply and demand. 

Rattling Trade Treaties

What would the ERS mean for current trade treaties? Currently, the US has entered in a trade agreement dubbed “the new NAFTA.” The agreement includes bringing tariff rates to zero, but Trump’s threat of tariffs against Colombia, Canada, and Mexico in the first few weeks of office have rattled trust in those agreements. Renegotiations for the treaty are set for summer of 2026. 

Economists warn that Trump’s recent plays with tariffs can drive up prices for consumers which could set off inflation. Countries that view the ERS as an intrusive regulatory body may retaliate with their own protectionist measures, escalating trade disputes rather than resolving them. This could have a ripple effect on industries that rely on global supply chains, from manufacturing to agriculture.

More bureaucracy? 

Another question has to do with regulatory concerns. Will the agency address a regulatory gap or merely duplicate the functions of existing agencies such as Customs and Border Protection (CBP) and the International Trade Administration (ITA)?

The ERS’s jurisdictional overlap with these agencies raises important questions about efficiency and necessity. Instead of streamlining trade enforcement, the creation of a new agency risks adding another layer of bureaucracy that businesses must navigate. This could result in slower processing times for imports and exports, increased compliance costs, and a chilling effect on international trade. Will the Department of Government Efficiency (DOGE) have any persuasion in this matter? 

Concerns that businesses may suffer at the hand of the ERS approach to enforcement may disproportionately impact smaller importers and exporters who lack the legal and financial resources to navigate complex trade regulations. Large multinational corporations, with their teams of compliance officers and attorneys, may be better positioned to adapt, creating an uneven playing field in the global marketplace.

Economic Consequences and Trade Relations

The ERS’s formation comes at a delicate time for international trade. With ongoing supply chain disruptions and geopolitical tensions reshaping global commerce, the last thing businesses need is additional regulatory uncertainty. The establishment of a new agency does require Congress to enact it, but, as noted before, Trump’s tariffs are playing the role of what the ERS would do. Whether it becomes an effective tool for ensuring fair trade or a burdensome obstacle to economic dynamism remains to be seen.