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Trump is proposing a new tariff agency. What does it mean?

The 'External Revenue Service' would most likely require legislation, but the president has some leeway to do it on his own.

Imports from Mexico and other countries would face high tariffs if President Trump's plans come to fruition. (AP Photo/Rebecca Blackwell, File)
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Jan. 23, 2025, 7:46 p.m.

President Trump’s ambitious policy priorities on taxation hinge on raising hundreds of billions of dollars through new tariffs on overseas products.

But his plan to create a new agency to collect revenue from the massive new tariff regime is raising a key question: What’s in a name?

On Trump’s first day in office Monday, the new president issued a memorandum directing his administration to explore options to create an “External Revenue Service” to collect tariffs, duties, and other foreign-trade-related revenues, and to include its findings in a report due April 1.

It’s a project Trump has been touting for several weeks: establishing a new federal agency to implement a grand protectionist ambition to shift the source of federal revenue away from taxation and toward steep tariffs.

“Come make your product in America and we will give you among the lowest taxes as any nation on Earth,” Trump told business leaders Thursday in a broadcast to the World Economic Forum in Davos, Switzerland. “But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff—differing amounts, but a tariff—which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt under the Trump administration.”

Critics of the tariff plan say it’s domestic importers, not foreign nations, who pay tariffs and those costs are ultimately passed onto the consumer. Trump claims that won’t happen, that foreign countries will foot the bill.

Creating an External Revenue Service—a reverse of the tax-collecting Internal Revenue Service—may not substantively change the mechanics of how tariffs work, but it would bolster the branding of the president's tariff policies, several trade analysts told National Journal.

“It strikes me as a PR stunt,” said Scott Lincicome of the libertarian-leaning CATO Institute. “More than anything, we already have an agency that collects tariff revenue. It’s called the Customs Office, or CBP [U.S. Customs and Border Protection]. Why you need to change that or rebrand that is beyond me.”

Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, said he believes the motivation to create an External Revenue Service is largely about branding as well.

“One strand is, a feature of a ‘good tax’ is that nobody knows who pays it,” Hufbauer said.

For economists, that’s a negative feature, but politically that may be just what the Trump administration wants, he added. Directing tariff revenue to an External Revenue Service implies that foreign entities are paying a tariff, even though most economists agree that’s not the case. Currently, importers pay duties to U.S. Customs and Border Protection. CBP deposits any revenue into the federal government’s General Fund.

How an External Revenue Service would be structured and where inside the administration it would be located remain open questions.

“I’m looking for a little more detail,” said Republican Rep. David Schweikert, a member of the House Ways and Means Committee. “There’s no question that Customs does lack certain tools, particularly on tariff mechanics.”

Most lawmakers asked about the proposal by National Journal said they hadn’t viewed it in any detail. A spokesperson for Ways and Means, which would likely have jurisdiction over such an agency, did not return a request for comment.

Trump has a few options to satisfy his pledge, experts say.

One, he could push to create a new federal agency separate from the IRS and CBP to help process a massive influx of tariff revenue. That would require Congress to grant Trump presidential reorganization authority, a temporary power allowing the executive to consolidate, create, or abolish federal agencies.

If successful, the administration could also move collection duties of some non-tariff international taxes from the IRS to the new entity as well, Hufbauer said.

The legislative route is uncertain, though. Republicans are divided over Trump’s massive proposed tariffs, and with narrow Republican margins in both chambers, only a few defections could block legislation.

Still, on Wednesday, freshman Sen. Bernie Moreno of Ohio introduced legislation—his first ever—that would fund an External Revenue Service by clawing back money appropriated for the IRS as part of the Inflation Reduction Act.

Even that bill, though, is just over a page long and doesn’t provide any language on how to organize an External Revenue Service, only a “sense of Congress” that the money should be spent on the new agency or department.

The CBP wasn’t always in charge of collecting tariff revenue, and legislation has moved those duties before. The Homeland Security Act of 2002 moved U.S. Customs from the Treasury Department to the newly created Homeland Security Department.

Trump’s other option is to simply take an existing wing of CBP or the Treasury Department and rename it.

“You hive off some portion of Customs and Border Protection and call these people External Revenue Service agents, give them a different name, and maybe put them in a different building,” Hufbauer said.

That option may not require legislation.

“Wholesale establishing a new agency would require Congress, but some redelegation of oversight or authority could be possible,” said Erica York, vice president of federal tax policy at the conservative-leaning Tax Foundation.

On the notion that if Trump were to navigate the legislative and legal hurdles and implement much of his tariff regime, which could include duties of as much as 60 percent on Chinese goods and 25 percent on imports from Mexico and Canada, Lincicome said that the government would need to ramp up its tariff-enforcement capabilities, wherever they’re located.

“In terms of collections, I don’t think you need any changes,” Lincicome said. “That’s all basically automated.”

Where an agency would need more resources would be in areas such as tariff avoidance, Customs rulings, and processing requests to exclude certain products or goods from the tariffs, he said.

“That requires humans to review and process in a somewhat timely manner,” he said. “So basically if you pump all that stuff up, turn the knob to 11, you’re going to need more people to do that.”

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