Trump's plan to hike tariffs instead of raising taxes could cause the 'mother of all stagflations,' policymakers warn

• Trump's idea to replace the US income tax with tariffs notched criticism from two treasury secretaries.
• "This is a prescription for the mother of all stagflations," former secretary Larry Summers told Bloomberg TV.
• Secretary Janet Yellen noted that it would make life unaffordable for Americans.

Janet Yellen and Larry Summers have not always agreed on everything, but a new tax proposal from the Trump campaign earned a strong rebuttal from both the current and former Secretary of the Treasury.

The idea, floated by Donald Trump to Republicans last week, would be to slash income taxes by raising tariffs on imports. While the proposal reportedly gained quick support from those present at the meeting, it has since been blasted as a surefire way to worsen inflation and dent US competitiveness.

"This is a prescription for the mother of all stagflations," former secretary Summers told Bloomberg TV on Friday, calling it the worst policy proposed in US history.

The chief concern is that tariff revenue provides nowhere near as much income to the government as taxes do, with income tax responsible for close to half of US revenue last year. To completely eliminate individual taxes, tariffs would need to climb well over 100%, secretary Yellen told ABC News.

When import levies rise, that will typically cause foreign traders to raise prices or pull their product. When that happens, supply falls, and domestic products also appreciate, according to the non-partisan Tax Foundation.

"The impact would be to make life unaffordable for working-class Americans," Yellen said. "That would harm American businesses."

But to Summers, that's the least of it. He compared the moment with the Smoot-Hawley Tariff Act, an infamous 1930s bill that's blamed for worsening the Great Depression.

"If you replaced half of income tax revenues with tariffs, those would be tariffs six times Smoot Hawley levels," he said, noting that Trump has proposed replacing the entire system.

This could cause enormous damage to US exporters and consumers, and spiral the world into "economic warfare" as countries respond, Summers added.

However, to GOP donor and billionaire investor Kyle Bass, Trump's idea is likely hyperbole, as it's just not feasible. Talking on CNBC, he pointed out that last year's import volume amounted to $3.8 trillion, where tax revenue is estimated to reach $5.4 trillion this year.

"There is just no way to run an import tariff scheme to get you to $5.4 trillion," the Hayman Capital CIO said.

Still, chances are high that a Trump White House unleashes tariffs in one form or another. The former president has made import duties a fundamental component of his future trade policy, and not only to relieve income tax.

He's additionally discussed applying a universal 10% tariff rate on all US imports, and raising it up to 60% for Chinese goods. Trump has argued that this will end the exploitation of US trade and give domestic producers an edge.