The United States is collecting more tariff revenue than at any time in its modern history.
In July alone, it pulled in nearly $30 billion from customs duties. That follows $26.6 billion in June and $22.2 billion in May.
These are record-breaking figures. At the current pace, annual tariff revenue could reach $308 billion, a fourfold jump from last year.
This money is coming from somewhere. And the impact it’s having is starting to show in Washington’s accounts, in company balance sheets, consumer behaviour, and the global economy.
How the US hit a postwar record on tariffs
In August, President Trump’s new trade measures officially took hold, raising tariffs across nearly all major US trading partners.
The average US tariff rate now sits at 15.2%, up from just 2.3% a year ago.
That’s the highest since the Second World War, according to Bloomberg.
The new structure includes 15% duties on goods from Europe, Japan, and South Korea.
Countries like India face 50% tariffs after failing to reach a negotiated deal. Other rates were simply assigned.
Since the start of these hikes in March, US customs revenue has exploded.
Tariffs brought in $8.2 billion in March, followed by a sharp jump to $15.6 billion in April.
By July, monthly revenue hit $29.6 billion. Over the three months from May through July, $77 billion was collected.
That was more than the entire 2024 fiscal year.
If current momentum persists, tariff revenue is expected to reach $308 billion by 2025.
For context, that’s nearly the same amount the US government collected in corporate income taxes last year, which was $366 billion.
Tariffs have become a top-tier tax source.
So who is paying for this?
It’s not China, Europe or India. Tariffs are collected by the US Customs and Border Protection from American importers.
These are taxes paid by US companies when they bring goods into the country.
In this scenario, importers face a choice. Either they absorb the cost and pass it on to consumers, or find alternative suppliers.
What they cannot do is send the bill to a foreign government.
Whether the cost reaches the end customer depends on how much pricing power a company has.
If consumers push back, businesses can’t raise prices without losing sales.
In markets like autos, that resistance is now visible. After years of price inflation during the pandemic, new car prices have stopped rising.
Some models have started to fall.
This puts pressure on companies with global supply chains. GM expects $5 billion in tariff costs this year. Ford raised its estimate to $2 billion.
Companies that built their production networks across Mexico, South Korea and China are now facing higher costs for the same goods they’ve always sold.
Some have less room to manoeuvre. The free-spending consumer environment of 2020 to 2022 is gone.
Discounts are back. Inventory is building up. Margins are tightening.
The reality is straightforward. Tariffs are a tax on US businesses. Whether passed on or not, they impact the cost structure of the economy.
Is reshoring really happening?
One of the central claims behind the tariff policy is that it will bring manufacturing back to America. And there are some signs that it’s starting.
Factory construction has increased sharply since 2022. Monthly spending on new industrial buildings now sits at $18 to $20 billion.
That’s triple the level of two years ago.
Major corporations have announced new production lines and supply chain shifts.
But these projects take time. Even shifting output to an existing facility can take months. Building and equipping a new one takes years.
And there’s a core contradiction. If reshoring is successful and imports fall, tariff revenue should drop too.
You can’t collect hundreds of billions from import taxes and simultaneously claim that domestic production has replaced foreign supply.
One must fall for the other to rise.
And the latest data from the Institute for Supply Management shows a very different picture on the ground.
US factory activity contracted in July at the fastest pace in nine months.
Orders shrank. Employment fell to a five-year low. That’s five consecutive months of contraction.
Therefore, tariff revenue is soaring, but domestic manufacturing is shrinking.
If reshoring were to work at scale, imports would decline, tariff revenue would decrease, and factory orders and jobs would increase.
The opposite is happening.
What consumers are telling us
The tariff surge comes at a time when US consumers are changing their behaviour. Inflation has cooled, but price sensitivity has returned.
The CPI for new vehicles has now declined for three straight months. Apparel and footwear prices are flat or slightly down year-over-year.
Durable goods inflation has stalled. Consumers are no longer willing to pay inflated post-pandemic prices.
Retailers are responding with discounts. They are also struggling to pass on new costs.
Many raised prices far more than their input costs during the pandemic.
That margin expansion is now reversing. Companies have returned to offering incentives and promotions.
Walmart and Target are cutting prices in key categories. Brands are once again competing on value.
In this environment, tariffs act like a hidden tax; one that squeezes profits without showing up clearly in sticker prices.
So far, the broader inflation data hasn’t spiked. That’s largely because companies have been absorbing the impact.
But experts are warning that this can’t continue indefinitely. If input costs keep rising, the pressure will eventually reach consumers.
What the market is seeing now
Investors are watching the tariff story closely. Markets dipped when Trump’s new policy was announced, but recovered after companies suggested the near-term impact was manageable. But that outlook is now being tested.
In recent weeks, major banks have issued warnings. They expect a pullback in the S&P 500 in the coming months, citing weakening growth, slowing consumer spending, and trade uncertainty.
Earnings reports from tariff-exposed sectors are showing cracks. Auto firms, retailers, and consumer goods companies are beginning to revise their forecasts.
At the same time, there are pockets of optimism. The tech and AI sectors are holding up. But the broader market is no longer treating tariffs as a non-event.
Legal challenges to the new tariffs are also underway. Trump has relied on emergency powers and existing trade law to impose the latest measures.
Some legal scholars argue these actions may not hold up in court. If they are struck down, it could force refunds, disrupt fiscal projections, and add uncertainty.
The sharpest truth: This is not free money
There’s no denying the US is collecting a huge amount of money through tariffs. That is a fact.
But where it comes from is just as important as how much it is.
This is not new wealth. Its revenue is extracted from the domestic economy.
Businesses are paying more to move goods into the country. Some are passing it on. Others are cutting margins.
In terms of reshoring, tariffs are not replacing foreign production with US production.
They’re taxing the same supply chains as before, just at a higher cost.
If the goal is to reduce the trade deficit and rebuild industry, the cost is being frontloaded through taxes on the private sector. For now, the benefits, if they come, are in the future.
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