Trump announces External Revenue Service to tax foreign trade profits

On January 14, 2025, in the United States, President-elect Donald Trump unveiled his proposal to establish a new federal agency named the External Revenue Service, aimed at taxing and collecting revenues from foreign trade partners. In his announcement via a post on Truth Social, Trump criticized the reliance on the Internal Revenue Service (IRS) and described existing trade agreements as weak, asserting that these have allowed foreign economies to prosper while American taxpayers shoulder the financial burden. He emphasized the need for foreign entities making profits through trade with the U.S. to contribute fairly. Trump asserted that this new agency would commence operations on January 20, 2025, coinciding with his inauguration for a second term as president. He declared that it signifies a significant shift in how the U.S. approaches international trade taxation, suggesting that it has been long overdue for foreign businesses profiting from American markets to be held accountable. The announcement is part of a broader agenda that includes imposing higher tariffs, around 25% on goods from Canada and Mexico and a 60% tariff on Chinese imports, as a means to bolster domestic economic interests. This initiative, however, raises questions about its implementation and potential impacts on the existing tax and trade systems. The U.S. Customs and Border Protection (CBP) is currently responsible for managing tariff collections, while it remains unclear whether the External Revenue Service would enhance or replace these functions. Trump's team has not provided further clarification on how this new agency will effectively execute its revenue collection responsibilities without adding unnecessary bureaucracy. Economists express skepticism about the viability of financing federal operations through tariffs, noting that previous proposals to substitute income tax with tariff revenue do not hold up under scrutiny. Politicians from opposing parties have criticized the plan as a potential tax hike for American families and small businesses. The proposal marks a critical point in shaping U.S. trade policies moving forward, signaling potential changes in international economic relations and domestic tax frameworks.