Can Tariffs Make Childcare More Affordable?

(Image credit: Getty Images)

published 10 December 2024

What if I told you that childcare costs are now higher than a year's tuition for your state college? That’s the reality for millions of struggling parents across the country.

As of November, the average cost of infant childcare in New York is $22.73 per hour, that’s $909 for a 40-hour week, and a monthly cost of $2,955, according to Care.com. Annually, that’s $10,000 more than what you’d pay for your child to attend the state’s college including tuition, student fees, housing, and food.

Rising costs of childcare in the U.S. amount to $122 billion in lost earnings, productivity, and revenue each year, according to business advocacy group ReadyNation. That’s up $57 billion five years ago before the pandemic worsened staffing shortages and exposed the industry's lack of funding.

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What many now call a childcare crisis is a reflection of the choices parents are forced to make each year due to lack of affordable care: stay at home, reduce hours, or minimize expenses to make ends meet. What does it mean for your wallet?

Families lose an average of $5,520 per working parent. Across the 14.1 million parents with children under age 3, that translates to $78 billion per year.
Businesses lose an average of $1,640 per working parent in reduced revenue and hiring costs, equal to $23 billion annually.
Taxpayers lose an average of $1,470 per working parent in lower-income tax and sales tax revenue. That adds up to $21 billion each year.

Many parents across the country are now wondering if President-elect Trump will address childcare costs. This was reportedly a key issue for many voters during the campaign.

When asked about skyrocketing costs, Trump said one tax policy will make childcare affordable: higher tariffs.

“As much as childcare is talked about being expensive, it’s relatively speaking not very expensive compared to the kind of numbers we’ll be taking in,” Trump told the Economic Club of New York in September.

However, economists aren’t convinced that the revenues from Trump’s tariff policies will be enough to sustain affordable childcare. Here’s what you should know.

Revenues from tariffs would ‘fall short’

Trump has floated several tariff proposals, with the most extreme version calling to impose a 20% tax on all foreign goods imported into the U.S. and a 100% tariff on Chinese goods.

The more modest proposal aims to increase tariffs by 10% on all foreign goods, and levying a 60% rate on imports from China. The Tax Policy Center calculated that this strategy would raise about $3.7 trillion in tariff revenues over the next decade.

However, net federal revenues would come in at just $2.8 trillion.

“Even that would fall far short of paying for all of the ambitious ideas he claims it would fund,” Howard Gleckman, a senior fellow at the Tax Policy Center said. “His campaign promises likely would add trillions of dollars to the federal debt.”

Why would federal revenues come in shorter? As reported by Kiplinger, tariffs will significantly raise the price of imported goods, and businesses are likely to respond by passing some of those costs onto consumers.

In other words, tariffs would make shopping will be more expensive next year. That’s hundreds of dollars in extra spending on food, medicines, and clothes that you won’t be able to use on daycares once tariffs are in place.

As a response, the Federal Reserve could raise interest rates to offset those price increases. The outcome would mean less profits for U.S. corporations, offsetting nearly $1 trillion of overall tariff revenues.

Trump’s childcare plans aren’t concrete

The lack of affordable infant care was a major talking point this election, and Trump suggested tariffs would pay for it. So, how could the revenue from tariffs address childcare?

Enhancing the Child Tax Credit

Several provisions in the Tax Cuts and Jobs Act are set to expire by the end of 2025, including a temporary expansion of the federal child tax credit (CTC).

What comes next is still up in the air. Sen. JD Vance, (Trump’s chosen Vice President) endorsed an enhanced child tax credit but noted that its success will be mostly up to Congress. Vance suggested that the expanded CTC would:

Be increased to $5,000 for all parents
Not feature a “massive cutoff” for lower-income households

Currently, the tax credit phases out for single filers earning over $200,000 and married couples making $400,000 annually. There is also an income requirement of $2,500 per year to qualify for the credit. As of November, Trump has yet to confirm support for this proposal.

How much would Vance’s expanded Child Tax Credit cost?

The Committee for a Responsible Federal Budget estimates that Vance’s CTC would cost roughly $2.7 trillion over the next decade.

That’s about the same amount that Trump’s modest tariff plan would raise in net federal revenues – $2.8 trillion, according to the Tax Policy Center.

That means if the Trump administration were to allocate tariff funds on infant care, nearly all of the revenue made would be spent on childcare – leaving no room to address his other tax proposals. Trump has previously suggested revenues from tariffs can:

Replace income tax
Fund tax cuts, such as exemptions for tip income or end taxes es on Social Security benefits
Pay down the federal debt

Can the new administration make childcare affordable?

For many parents and caregivers, the lack of affordable childcare has given them an ultimatum: working extra hours, reducing expenses, or abandoning the workforce to take care of their children.

It’s worth noting that Vance previously suggested getting a “grandma or grandpa” to care for a child would relieve “some pressure” related to rising daycare costs. He also characterized this model as “pro-family.”

For now, it remains to be seen whether the Republican-led Congress will extend the temporary provisions of the child tax credit under the TCJA, or enhance the tax break to fit Vance’s proposal.

If Trump’s tariff proposals come to fruition, the reality is that the net federal revenues will be limited and his administration will have to choose which tax policies on his priority list he’d rather address: funding tax cuts or enhancing the CTC.

What happens next will be up to Congress next year. So, stay tuned.

Gabriella Cruz-Martínez is a seasoned finance journalist with 8 years of experience covering consumer debt, economic policy, and tax. Before joining Kiplinger as a tax writer, her in-depth reporting and analysis were featured in Yahoo Finance. She contributed to national dialogues on fiscal responsibility, market trends and economic reforms involving family tax credits, housing accessibility, banking regulations, student loan debt, and inflation.

Gabriella’s work has also appeared in Money Magazine, The Hyde Park Herald, and the Journal Gazette & Times-Courier. As a reporter and journalist, she enjoys writing stories that empower people from diverse backgrounds about their finances no matter their stage in life.