Legislative staff explain tariffs 101 and potential short- and long-term effects on Utah revenues

Noah Hanson, staff economist with the Legislative Fiscal Analyst’s Office, gave an extended briefing May 20 on tariffs and trade, explaining the economic theory, historical context and possible implications for Utah tax collections.

Hanson used supply-and-demand diagrams to show how tariffs raise domestic prices relative to the world price and can reallocate a portion of consumer surplus to producer surplus and government revenue, while also creating deadweight loss. He described potential macroeconomic effects of protectionist policies: "Those 2 red triangles, that's where a lot of our risk is for, tariffs. That's going to be like a decrease, a potential decrease in GDP. That could be an increase in unemployment rate," Hanson said.

Hanson noted tariffs are effectively a consumption tax and sketched probable short- and long-term scenarios for state revenues: in the short term, consumption‑based tax collections (sales tax, certain excise taxes and motor fuels taxes) could fall with reduced consumption or higher consumer prices; in the long term, if production and jobs return to Utah, personal income and therefore income-tax collections could rise. He added that historically tariffs accounted for a much larger share of federal revenue before the income tax was adopted in 1913, and that modern tariffs comprise only a small share of federal revenue (about 2% recently).

Hanson also explained who bears the tariff cost: in the short run companies may absorb costs; in the medium to long run the cost usually shifts to consumers. He closed by noting the Legislature already has fiscal tools — rainy day funds, non-lapsing balances and bonding — to manage recessionary effects that could arise from trade shocks.

Ending: The committee received the briefing; staff said they will update stress-testing figures and reserve inventories later in the year as part of normal fiscal monitoring.