Businesses have been paying them out of their huge profits and have not been able to pass them on to consumers so far.
By Wolf Richter for WOLF STREET.
Collections from “customs and certain excise taxes” spiked to $28.0 billion in June, after hitting $24.0 billion in May, and $17.4 billion in April, according the Treasury Department’s Daily Treasury Statement today. The June total was up by 214% from February, before the new tariffs were implemented, and by 270% or by $20.5 billion year-over-year.
This $20.5 billion is additional revenues, compared to a year ago. If tariffs bring in an additional $20.5 billion a month going forward, it would amount to about $250 billion a year in additional revenues.
This $28.0 billion is the amount in customs and excise taxes that the Department of Homeland Security – which includes Customs and Border Protection – transferred in June into the Treasury Department’s checking account at the Fed, the Treasury General Account. It includes a small amount in “certain excise taxes” (in May, $1.9 billion, in April $1.1 billion). The rest is from tariffs. The Monthly Treasury Statement, which is released later, splits out tariffs separately.
Tariffs are taxes paid by businesses. Whether or not businesses can pass them on to consumers to push up consumer price inflation remains a mystery. They’re certainly trying, but may not have the pricing power to do so. If a company’s sales crater and market share shrinks, because it jacked up prices and enough pissed-off consumers shifted purchases around, then that’s an expensive lesson to re-learn all over again.
So far, there are no signs that tariffs have been successfully passed on to consumers, and consumer price inflation for durable goods, a prime target of tariffs, was 0% month-to-month in May, according to the PCE price index last week (blue in the chart below), even as durable goods prices have been on an upward trend out of their deeply negative hole for over a year (red).
Whether or not, and to what extent tariffs can be passed on to consumers is unpredictable and depends on whether or not companies will have the pricing power to raise prices without crushing their sales – they had this pricing power during the free money era in 2021 and 2022 but then lost it as the free money ran out – so we’ll be watching this closely:
Companies have lots of room to eat the tariffs: Profits at “nonfinancial” corporations – the companies more likely engaged in imports – were at an annual rate of nearly $3.0 trillion in Q1, having exploded by 122% since Q1 2020. This profit explosion was made possible by pricing power that companies suddenly found they had when consumers were swimming in free money and were willing to just pay whatever. But that free money-era is over.
At the current rate, tariffs would barely dent aggregate profits, though they would hit individual companies harder. For example, GM which imports cars from Mexico, China, Korea, and Canada, and which imports many components of vehicles it assembles in the US, has no room to raise prices without killing its sales, and so said that it expects a $5 billion hit to its profits in 2025.
Nike jacked up prices during the free-money era and is now struggling with falling sales because its prices are too high, and it cannot raise prices; it needs to cut prices to revive sales. It put the dent to its profits from tariffs at around $1 billion. Other companies have their own figures. But they made huge amounts of money during the era of the profit explosion.
Consumers, willing to suddenly pay whatever starting in late 2020, paid for this historic spike in corporate profits, and the new tariffs are petty cash in comparison:
Companies can dodge the tariffs by producing in the US. Numerous big companies have laid out plans to shift production back to the US, which is the primary purpose of tariffs. Shifts that involve expanding existing factories in the US, or building new factories, will take years to complete. But these efforts, from investments in the US to production in the US, and everything that goes along with it, are immensely valuable to the US economy, and generate lots of new tax revenues for all levels of government. But there is a very long and hard way to go:
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Given the ferocity of the MSM’s lambasting of the planned tariffs, you’d think they’d be out in full force informing the public they were (so far) wrong!
Maybe and wisely, too soon to tell!
I just updated my companies pricing today, about 5000 skus. This goes into effect 2026 for retail costumers so a little time before implementation. About a 4% average increase. We’re a manufacturer in sporting goods. We ate about 25% of our cost increases and passing on the other 75%. Pretty big mix of reasons; part tariffs, part material (steel/aluminum) costs, and just an overall uncertainty for the future. Will be interesting to see if retail passes that all on or not which would be about 8% at the consumer level.
Good luck. Don’t come whining to us here that the economy is bad and that we’re in a recession because your sales dropped because you raised prices.
That’s the test. If your sales go down or stagnate, you didn’t have the pricing power to raise prices. It doesn’t matter one iota what price sticker you put on your goods; you have to sell them for the price increases to become inflation (inflation is based on transaction prices, not on asking prices). If you have to run 20%-off promotions because your sales fell after the 4% price increase then you didn’t really raise prices, and it wasn’t inflationary, LOL
If you raise prices by 4% and your sales jump at those higher prices, then you had pricing power, and the new prices enter into inflation. That’s what companies are hoping for. But it’s hard to pull off during normal times.
Thanks Wolf, appreciate the comment and the site immensely!
I am not the whining type, but happy to report what shakes out for us in the future. Up and down economies are all the same to me personally, both opportunities.
We likely have a small amount of pricing power, but that has about run out. I suspect retailers are more on the hook now, so we’ll see where that goes. 10 year ago big box was content to make around 40 points on our products and since 2020 it has crept up to a full 50 points, if not more in select cases.
Nah they are always passed onto the consumer.
In business you always have to pass onto the consumer.
Anyone saying otherwise is well… not informed.
Ignorant BS. Why do so many companies constantly go out of business???
you have no idea about “consumers.”
I’m not buying any of this wishful thinking about companies eating the cost increases. If all your competitors pass on the increases, and it only makes sense that they will, you won’t stand out. Lots of companies don’t have the luxury of eating cost increases. We are not all Apple and Google with massive gross margins. Prices went crazy during Covid and people just paid up. Where is the evidence that this time will be different? Chances are consumers will pay up again.
If you are raising wholesale price by 4%, why does that become 8% at the retail level?
Good catch, my error. I am often working in the mindset that when I raise something $1 that that translates to $2 for the consumer. However the percentage increase stays the same.
@ The Pike,
Yes, please keep us posted on how your pricing initiatives pan out. Interesting case study because sporting goods are a discretionary expense. Discretionary goods have a higher degree of price elasticity of demand (i.e., the demand (sales) of discretionary items tend to be more sensitive/responsive to price changes compared to non-discretionary expenses.)
Part of that equation will be the strength of your brand name. Hopefully it is robust and a high level of loyalty accompanies your brand.
Is there any data on how much of the tariffs are based on the IEEPA, which has recently been challenged in court (and has not been found by any court EVER in its almost 50 year history to authorize tariffs) and other sources, such as Section 301 (which clearly authorizes tariffs)?
So tariffs are at a run rate of ~1% of GDP and growing…interesting. The groupthink that said consumer prices MUST rise got out of hand. I’m not seeing any evidence of hyper-inflation from tariffs as currently promulgated.
I mean, tariffs COULD hit the end consumer directly, but not before they ripple through the entire supply chain first. A retailer is going to negotiate with their vendor, the vendor is going to push back on their supplier, and that supplier will do the same with theirs, all the way down the chain. Each layer absorbs some of the cost, trims margins, or reworks terms to stay competitive. So by the time the product actually reaches the consumer, most of the tariff burden has already been absorbed—and there’s not nearly as much left to pass through in the form of higher prices.
Agreed. It’s simple:
If you set your prices based on how much something COSTS you [cost plus margin], you’re in trouble because you aren’t running a good business.
If you set your prices based on value in the marketplace, a tariff hasn’t changed that. What has changed is all the middlemen are scrambling to attempt to reset values, but if the ultimate buyer doesn’t accept your increases, you eat the cost out of profit or you figure out how to be more efficient. Your cost means nothing to the buyer.
The big guys like Walmart thrive off this. Their #1 mission in life is to constantly hammer down the price they pay for everything, forever. They don’t care how you make it happen or what happens on your P&L, they don’t see any value in buying the same product for a higher price.
p.s. what is going to happen within the supply chain is some buyers (who don’t care, or who have no spine, or have some competing motives) at a company will accept a price increase from upstream and the company will not be able to pass it downstream, and they’ll “make it up on volume.” Happens time and time again.
This is why monopolies are dangerous, they can set the prices in both directions by not allowing any of this price discovery action
Businesses with scale will win. A lot of middling vendors cannot afford to lose their distribution, whether it is physical shelf space or digital shelf space.
Wal-Mart is interesting, because their margins are super tight. It’s a tougher, but still solvable, challenge for them. If you have scale AND you have juicier product margins, the tariff is way more manageable. Nike just announced the tariff is $1 billion of exposure, or less than 3% of revenue. And they expect less than a 1% margin hit for the year. By the following year, I’d bet they’re completely in the clear with zero margin impact.
Nike’s problem has been falling sales and falling profits because its products are too expensive; it needs to cut prices by a lot to crank up sales. Tariffs are only a minor issue among the massive issues it faces.
Another picking winners and losers scenario. Brick and mortar taken to the shed while the monopoly tech companies coast on by.
Some thoughts on Tariffs (for consideration):
– Tariffs first roll through a company’s balance sheet (i.e., purchase goods and pay the tariff, with the adjusted/higher total landed cost sitting in inventory on the balance sheet) and then through the income statement once the products are sold. For some companies, the tariffs paid are a balance sheet issue today (and cash/liquidity management item) if the products have not yet been sold. The second half of the year should provide more insight as to the impact on company profitability levels as the products and tariffs roll off the balance sheet.
– If companies have to eat the tariffs, their profits will be directly reduced, period! If this is the case, their taxable income will be reduced which will result in lower corporate/company income taxes being paid. While the figure referenced in this article related to the tariffs being received is informative, it doesn’t tell the entire story. An analysis needs to be completed on the net, net flow through and impact on tariffs as in the end, tariffs represent nothing more than a different form of taxation and a cost of business for companies.
– For some companies that have purchasing power (as WR noted), the tariffs or a portion of the tariffs will be passed on to the end customer, for others, they may have to eat the tariffs. Other companies may have some purchasing power and can push on oversea vendors to reduce costs (most likely a small percentage but a possibility). Still other companies may cut salaries, positions, rework key supplier agreements (e.g., advertising on social media), etc. to help manage the profitability hit. But a word of caution here, while the charts (offered by WR) have documented the significant increase in profitability over the past five years, this has not been evenly distributed. There’s no question the tech space (from chips to social media to software) enjoy huge profit margins and can absorb the impact of tariffs more efficiently (if they are even directly impacted). However, for distributors, retailers (both B&M and DTC/ecommerce), certain manufacturers, and other companies, they already operate on very thin profit margins and will have no choice but to address price increases. The net impact of the tariffs will not be absorbed equally across different industries and as such, the strategies used between different industries and companies to manage the tariffs will vary widely.
– As noted by others on this site, I also have direct knowledge of the impact tariffs are having on a medium sized DTC/ecommerce company (roughly $30 million in annual sales) operating in the consumer fashion space. Based on their economic model (and one that is similar for a number of DTC companies), there is no way they can absorb the increased tariffs without raising prices (running at an EBITDA rate of roughly 10%). Further, there is no current solution in the US for the production of their products which is somewhat technical and has been mastered by overseas suppliers. You might suggest/argue that a domestic supplier could develop the process, refine it (to ensure quality standards are met), and then scale but this would take at least a year if not two. There is no way this company could survive while domestic suppliers master the production process so their choice is simple. Don’t raise prices and absorb the tariffs, out of business. Transition to a developing domestic supplier, out of business (as supply chain disruptions such as volume availability, quality, etc. would kill the brand and company). BTW, if a qualified domestic supplier could be identified, prices would be much higher as it costs far more in the US to manufacture the products. The solution, simple. The company is raising prices to manage the impact of tariffs. Interestingly, the price increases will primarily be in the second half of the year as the holiday season order placed currently will land later this year and then be sold. Note: The company has already raised prices on some products with limited impact or push back from the consumers thus far. With a strong brand, high quality products, that were already value priced, the company has the upper hand with the customers right now.
– Finally, I would like to clarify a statement made in a comment above related to a reference to “hyper-inflation”. Tariffs should not be a driver of hyper-inflation but rather just good old fashion inflation (costs of products increase, prices have to rise). Remember, hyper-inflation is centered in the loss of credibility and confidence in a country’s currency. That is, when currency is received, it is recycled into goods, products, assets, etc. as quickly as possible to offset the fact that a country may be experiencing 10 to 50% inflation per month (so currency is liquidated as quickly as possible into real assets). For case studies, refer to Weimar Germany, Zimbabwe, and other South American countries.
At a macro level, the impact of tariffs is still in the early innings as it will take months if not years to fully digest. But one thing is for certain, over the long run, product costs are going to increase as whether a company continues to buy products from oversea suppliers and pays the tariff, shifts to a domestic manufacturer/supplier (which will more than likely be more expensive as this is the primary reason companies purchased from foreign suppliers in the first place), or eventually has to recoup lost profits from “eating” the tariffs over the short term (and raises prices somewhere down the line), business economics 101 will take hold (at least in a capitalist system). Costs increase and so must prices.
Your #1. commodity costs vary widely and are very volatile, such as metals, battery materials, food products, etc. And manufacturers deal with the volatility. They pass on neither price increases nor price drops of commodities that go into their products, in part because they are such a small part of the ultimate retail price of the product. They didn’t pass on the tax cuts either that reduced their costs, LOL, so why would they now suddenly pass on the tax hikes (tariffs)?
Your #2: “their taxable income will be reduced”
LOL, what taxable income??? Many big importers pay little or no income taxes in the US, such as Apple and big pharma companies. They pay 15% income taxes in Ireland though, and the pay minimal income taxes in other tax havens through which they run their profits. Total corporate income taxes paid by all companies in 2024 was only $500 billion. If $250 billion in tariffs are collected, it will increase the take by 50%, and since many of these importing companies pay little or no US income taxes, tariffs are just about the only income-related tax they’d pay.
3. Your last paragraph shows that you don’t understand business at all, that you live in a world of wishful thinking. Why do you think so many companies go out of business ALL THE TIME?? THINK!!! Because they cannot sell profitably what they sell. They cannot pass on their costs and lose money for a while and then go out of business. Our bankruptcy courts are kept busy by them. And many companies fold without filing for bankruptcy. It happens all the time, every day, all year long.
Still early to gauge how tariffs will effect inflation. In our world, tariffs are truly driving production costs up, but our end user demand is dead as a door nail right now. So we are screwed either way.
One of our competitors did a 5.5% tariff-induced price increase which goes into effect next week. Another just announced 5.5% today, enacted as a tariff surcharge which will float. I have 6% prepped and ready to print. Just trying to talk myself out of it, and trying to find ways to avoid it.
The main driver for us…aluminum. No shortages in sight. According to our suppliers, ingot is rising entirely due to speculation around tariffs. They pass through the ingot price at time of mill exit.
Back in 2018, we ate 100% of the tariff impact, which was much smaller, but it still wiped out our profit. Can’t do that again.
Aluminum is electricity in solid form.
In a proper economy, the “IRA” doesn’t exist, and cheap plentiful natural gas and nuclear power make aluminum smelting worthwhile in the USA. And solar/wind would be niche products in isolated desert towns.
We may never know the impact of teriffs. 20 or more billion a month and trillions more debt to be serviced every year. What a joke.
Another factor driving up costs in the economy and especially here in California is huge increases to minimum wages which as of today went to $17.87 in the City of Los Angeles and $17.82 throughout all of Los Angeles County which is a huge hump over prior levels. Many other areas of California have had similar increases as of 07/091/2025 which will be reflected in prices and costs numbers going forward.
Yes, and people will blame THE TARIFFS for the higher hotel rates, and they’ll come in here and tell us, I told you so 🤣
The current US deficit is now around $2,000,000,000,000 a year so it will be somewhat helpful to now gain about $20,500,000,000 to help in offsetting some of that going forward.
I thought the real “primary” reason for the tariffs was to offset some of the loses from income tax reduction on the rich and the corporations due to the Big Beautiful Bill. As much as they want to “drown the government in the bathtub,” even Trump’s government needs some income to function.
The primary reason for tariffs has always been to change the math for companies to produce in the US — manufacturing in the US is hugely important to the US economy. And our corporate tax code encourages companies to offshore production — see Apple and Big Pharma. Tariffs change the math.
And then, second, the production that doesn’t shift to the US is going to raise some revenues.
Wolf, you have been early, contrary to consensus economist opinion and Correct on this Tariff issue. I think it’s terrific and I commend your work.
You state ( and I agree) that moving more production to the U.S. brings great benefits to America. I recall you have written about those items before . I’d like to brush up on those benefits.
Can you identify that article ?
I have a gathering coming up that includes a prominent and economically literate politician where this item will probably come up.