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” that has ranged from $1.2 billion to $1.8 billion over the past 12 months, or $1.6 billion on average. The rest is from tariffs. The Monthly Treasury Statement, which is released on July 11, splits out tariffs separately and will show customs duties by themselves at around $26.5 billion.
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!
Isn’t it time to ask if federal statistics are going to be reliable going forward? Seems to me naive to assume an administration bent on purging the government of experts in favor of ideologues, all of whom lie like they breathe, wouldn’t present whatever numbers flatter their project.
Please repeat this comment every 4 years, it’s always been true and probably always will be.
Neither “party” differs from the other all that much on the issues that matter most.
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.
sufferinsucatash
Ignorant BS. Why do so many companies constantly go out of business???
you have no idea about “consumers.”
Pike
I just got my broadband provider’s notification that they will raise my monthly subscription rate by 60%. No tariffs involved, LOL. That goes into services inflation.
It was $25 a month for about two years, a special when I switched to them after my prior fiber-to-the-house provider doubled their rate from the initial $35 a month (it never was $35 a month after all the extra fees) to $74 a month. Those are the two providers of cables to the house.
I also have wireless providers, my current G4 which is 18 Mbits, which is pretty fast, which is my backup when my cable service goes down; and Verizon’s new 5G which is much faster but not as fast as fiber, but fast enough. But if I switch to G5, instead of cable, then I don’t have a backup, and I have to have a backup for everything because that’s my job here.
So essentially two outfits to choose from, one just hiked the price by 60%, and the other is even higher.
Now that’s “pricing power” and it’s in essential services, where companies generally have a lot of pricing power, and where inflation has been active and typically is active.
@wolf regarding service provider price increases
I used to maintain 2 connections. One to the house and one to my office in a small structure in the back yard.
I had the same experience as you, significant annual price increases from the phone company for my business internet. My house connection was from a different provider.
Canceled the phone company and spent a couple hundred buying a fancy antenna that allowed my office to pick up the Wifi signal from my house with about a 10% loss of bandwidth but still better bandwidth than the phone company was providing.
If prices keep going up my next step will be to look seriously at starlink. The ground carrier knows this and price increases for our area have been frozen at $10 below the starlink cost for 2 years now.
Gotta agree with sufferinsuctash here. Currently we are in the phase where the smaller players get squeezed out. Once they feel comfortable, then they consolidate, and prices rise to whatever the monopolists set. It’s an old playbook. See taxis, software, banking, healthcare, advertising and many more.
Wolf
Q:Were 2017 tariffs passed to the consumer?
A: Yes, studies show that tariffs imposed during the Trump administration in 2017 were passed on to consumers, with lower-income households being disproportionately impacted. Tariffs increase the cost of goods by passing on the added cost that companies pay to the federal government as a tax. They can also reduce the range of products available by making some imports unprofitable…
🎤 drop
Lol
sufferinsucatash
Stupid-ass bullshit propaganda, designed to be spread by brainless morons. The data has been out there for years, all you have to do is LOOK AT IT:
I like the “pricing power” phrase another great Wolfism.
Is there a parallel to this in the current real estate markets both residential and commercial?
Did real estate “assume” it had “pricing power” 3 or 4 years ago and are just now finding out….they didn’t? At least in some markets.
“pricing power” is a classic phrase from economics. I didn’t coin it, sorry to say.
Elasticity of demand.
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 had the ability to increase prices without hurting revenue you would have done so already.
Consumers dictate prices, not business. If consumers aren’t willing or able to purchase at higher prices then you must lower them.
This is business 101.
The other option lay off staff. Cut costs
You should have gone on to business 201. If consumers dictated prices then your next car would cost $500. Business generally try to maximize profits. When monopolies and oligopolies exist, for example, prices will be higher. Regardless of what the consumer wants. If competition allows it, prices will be increased. If all suppliers experience higher costs they will attempt to pass those costs on. And they likely will be successful. Yes revenues may be slightly reduced but profits will be higher.
There will always be a company that wants to gain share who will undercut the others depending on how “essential” the produce is. If not a physical store then an online one that will try to operate on much larger volumes.
My local grocery store is an example. Their whole model is to find captive markets like our small town, raise prices and lower quality and service.
You put up with it for a while. But I stopped buying there altogether and drive 100 miles to shop. Better selection, pleasant shopping experience, and the money saved pays for gas. A few hours drive listening to books. There are usually always pathways to adapt.
In the end, there are lots of things I buy that I can live without.
To hit back at price increases, we’re now buying a lot of our produce online. It’s a much better deal, it’s fresh, it’s beautiful, the selection is HUGE, and they delivery it to the home. Safeway used to get that business, and now it doesn’t. In addition to high prices, Safeway gets much of its produce from Mexico, when we sit an hours’ drive from the Central Valley, where they grow nearly everything. And we’re not the only ones doing this. Safeway is a ripoff company.
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.
Any insight into what your competitors may be doing?
My hope is that most consumers, like me, will boycott price increases, particularly after the profit spike when “free money” was plentiful.
Either seek alternatives, or do without.
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.
Well WR, my comment certainly achieved its goal as to continue to light the fire under the tariff discussion. BTW, I do understand business, as for over 40 years, I’ve been active in both highly successful companies and also assisted liquidating businesses that have failed (via BK or ABC proceedings). Your point that companies fail is correct, but you failed to mention the fast number of companies that have succeeded as well, which include those that proactively manage prices to generate reasonable profits. Tariffs are a part of this process, and the best managed businesses will find a way to deal with this new challenge accordingly. My primary point is that businesses (if they want to survive) of all shapes, sizes, and areas of focus will deal with tariffs in a manner that continues to protect their business interests and ensure reasonable profits are generated. If not, then as you pointed out, the businesses will ultimately fail. Just part of the process of owning and operating businesses as its definitely not for the faint of heart.
BTW, if you want to challenge me on understanding business, I suggest you complete just the simplest amount of research on me and my expertise in finance, accounting, and financial statements. As you stated in a previous post (the other day), go ahead, make my day. If not and you take offense to my post, then feel free to ban me as you see fit.
if you know all this, then why did you insert these morsels of BS into your comment?
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.
It should be helpful, especially since you’re comparing an annual figure for the deficit with an increase in monthly revenue.
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.
I have written some comments about the wide-spread benefits of manufacturing in the US, but I have not written an article about it, though I have mentioned some of them in various articles. The problem with comments is that I write thousands of them, and they’re very hard to find later. I just now tried for a few minutes but couldn’t find the major comments I was thinking about.
You can try. Go to my tariff tag:
https://wolfstreet.com/tag/tariffs/
scroll down to bottom, click on page “2” and scroll down to the third article from the bottom, my first tariff article in this tariff season (just above the last article of the prior tariff season through 2019). Start there, comb through the comments, and then go up to the next article and do the same, etc. You may have to piece several comments together. Other commenters also listed benefits of manufacturing in the US.
Yes. It’s essentially a corporate minimum tax on those corporations who choose to make stuff overseas and foreign corporations who sell their stuff here.
Baseline 10% tariffs with a free trade agreement.
Wall Street believes he is bluffing.
He is not. Will have to check and see spy puts 7/10.
The 10% universal tariff and 30%+ tariff on China have been easy enough to adjust to, but not the 25%/50% on aluminum and steel.
My company sells stamped steel, cast aluminum, and extruded aluminum components. We developed relations with an American supplier during Covid to help alleviate some supply issues.
The capacity and tool+die knowledge in America is far, far behind. It is easier to get extruded aluminum from Brazil than America. I understand the whole point of tariffs is to bring this back to America, but there’s one other problem:
These American suppliers rely on importing aluminum and steel to be price-competitive. It is still cheaper to import extruded aluminum from China than it is to have an American company extrude aluminum, whether the raw material was sourced domestically or not.
My point is this specific tariff (aluminum and steel) is not helping to onshore manufacturing. It’s just making aluminum and steel more expensive across the board.
Maybe if it was coupled with subsidies on American aluminum and steel or the tariff was specifically aluminum and steel widgets, not raw material, it would work as intended.
If a company had the ability to raise prices, wouldn’t they have already done so to boost profits? I guess this is part of calculation business owners have to make. on the other hand, if something suddenly costs more for everyone to make, and margins are already razor thin, either the price must go up or that product just isn’t viable. It’s amazing how prices in biotech supply (mostly china origin) have marched north since 2020. I suspect that will end with all the labs shutting down. I’m still waiting for the bottom to fall out but my perspective is clouded by my experience
Some you commenters saying that businesses can just raise prices remind me of home sellers here in FL – thinking their house is worth $1M, but no buyer will touch it for that amount.
Asking price means nothing
In my mind, the global tariff war and exchange rate dynamics, result in overall gross margin compression, which lays the groundwork for lower GDP — a cancer that spreads —- and essentially tariffs end up being a way to slice the global trade pie into slices, where some gain in size while others shrink.
As gross margins decrease, everyone has to be more competitive, as everyone deals with a trade tax — there are no winners.
Billionaires always win. Never forget that.
Hi great article, love the trade deficit chart at the end. Is there any way to see the trade deficit chart adjusted for inflation, or am I wrong in assuming it hasn’t already been adjusted?
I think it’s great to want to bring manufacturing back to the USA, but it’s sad the politicians don’t want to make better friends with China and other countries as trading partners. Maybe some tariffs are okay though.
This is raw annual data. You have to go to my GDP articles (“real” GDP, adjusted for inflation) to see inflation-adjusted, seasonally adjusted annual rates of the quarterly trade deficit (“net exports”):
https://wolfstreet.com/2025/04/30/q1-gdp-whacked-by-massive-spike-in-imports-on-tariff-frontrunning-consumer-spending-grew-business-investment-soared/
It seems to me that prices increased so much during and following the pandemic along with the huge increase in spending that we may be in an environment now where people don’t need to purchase as much which could create an environment where businesses can’t continue to increase prices and consumers will be more strategic with purchases and this may help keep inflation under control. We shall see…
Wolf, what do you think about an idea of taxing capital inflows instead of tariffs to balance US trade deficit?
The motivation being that it achieves the same goal (you must have capital inflows to finance trade deficits), but being more efficient by addressing issues like trade rerouting from China through third countries with lower tariffs level.
Why do you think Trump administration is not willing to use that tool?
“what do you think about an idea of taxing capital inflows”
Go ahead and tax them TOO?
There was a provision in the BBB that would have done that (the “revenge tax”), but it got stripped out.
Im already “pissed” about inflation. Americans are devastating by inflation.
I stopped eating out at restaurants after me & my wife paid $43 for pancakes & eggs in 2023 in Sacramento.
What an absurd rip off & the government is creating more inflation.
I must confess to you Wolf, I have thought about contacting a Federal Reserve recruiter to see if I could get a job with them.
Just to get inside the belly of the the beast. I’ve worked with some of them. They told me only the top are actual Federal employees, the rest of them are not federal employees. Zero government pension.
Tariffs might lead to some consumer price inflation, but it can not cause inflation on a monetary basis because every dollar collected as tariff directly offsets a dollar that would have been emitted in deficit by government spending. It amounts to a corporate tax. I don’t know why people freak out about tariffs. You can avoid a tariff by changing your behavior. A tariff is a targeted effect on imported goods and diffuse benefit by reducing deficit spending. A subsidy has a targeted benefit to an individual and diffuse effect by making everyone else pay more. Which is better?
From what I can determine, the historical correlation between tariffs and inflation appears to be weak. Also, I don’t think there has been this much volatility in the tariff rate during implementation, so we may be in rather uncharted territory.
But for what a lot of folks care about: how will this impact my 401k ??? i.e., US equities and bonds as that’s what most the office grunts and retirees are in. Well, if there is inflation, then it’s probably not good for either, especially if there’s also a slowdown, which seems likely. Stagflation is then on the table, and that is no fun for investors.
However, if there’s no inflation but we do have tariffs, it’s not great for equities, either, as the market is already relatively high from a P/E and, especially, CAPE P/E perspective. US equities are and have been one of the dirtiest sheets in the market from that perspective.
If there isn’t inflation, that means companies are, as T put it, “eating the tariffs” or, from an investor perspective, “eating the earnings.” Some companies will decline, some (perhaps the few that do a lot of US domestic manufacturing that isn’t heavily dependent on foreign supply chains) may prosper, others (heavy services and assuming no retaliation on services) may status quo, and the ones caught up in the new 15-20+% tariff regime, depending on how the lawsuits and negotiations resolve, will take a large hit on earnings.
I do not understand how this isn’t long bearish for US equities. But what do I know? The S&P is slightly up from when this contentious trade policy began.
Hey Wolf
Everyone isn’t Walmart or Apple
I was one of tens if not hundreds of thousands of small to mid level businesses importing from Asia
Most companies like us, operating in a highly competitive market, worked on gross margins of anywhere from 35-44% That’s the gross. All of our expenses come off that.
Please explain to me how we can absorb a 30% increase in our cost and still stay in business
Also, you’re looking at May retail numbers
Almost nothing in the stores in May were subject to tariffs- They were mostly shipped in December/ February, before the tariff increases
The full effects of the tariffs will be felt in the fourth quarter- Holiday inventory is usually built up July- September at the wholesale level and shipped to retailers Aug- October
Of course, customers will ask us to absorb a few points and we’ll try to get our Chinese factories to absorb a couple of points, but there will be some very big increases at retail
And the burden will fall hardest on the lowest income earners. The ones who even now, have very little left after they cash their paychecks
One other thing
Most companies finance their inventory with bank loans which they pay back when they collect money from the customers- in many cases in January
For many companies, this is their max credit
What happens when their goods are on the water and they don’t yet have the cash to pay 30% more for their inventory than they budgeted??
A lot of small/medium size guys will be pushed out of business
“A lot of small/medium size guys will be pushed out of business”
A lot of companies of all sizes get pushed out of business all the time. Remember Bed Bath & Beyond? Toys R Us? Sears? K-Mart….
Here’s the fate of a big pile of retailers – I started this series in 2016, and it’s still going strong — and that’s just big retailers, not companies in general:
https://wolfstreet.com/tag/brick-and-mortar-meltdown/
Hey Wolf, just want to say your work is really great. The measure of value of information in my world is it’s predictive power – your work is not just extremely well thought out, data driven and interesting, but *useful* for predicting future outcomes. So thank you!
I understand your argument here, and so far you’ve gotten this spot on: no sign of inflation, yet tax receipts piling up – it must mean that corporations are eating the tariffs. One of your counterpoints to many posts on here is that businesses indeed go out of business all the time, a side effect of either trying to sell goods at a loss, or raising prices to the point at which your customer base jumps ship.
Are you implying in this comment that the tradeoffs we’re making with tariffs are just “worth it”? Basically inflated corporate margins get squeezed and yes some (maybe many?) businesses go broke – but this is a small price to pay for the tax revenue and, in the long run, reshoring? My question is really just – $250B has to come from somewhere – and if it comes from corporate profits at the same time as we start to experience an increase in corporate bankruptcies, won’t that ultimately be reflected in lower equity prices (and potentially a weaker job market)? In that way the tariffs could be deflationary – an argument I’ve heard made elsewhere.
Or is there something I’m missing where these tariffs really are just a free lunch in your view?
Thanks again for the great content and any attention you give to this post.
“Are you implying in this comment that the tradeoffs we’re making with tariffs are just “worth it”?”
No, I’m not implying that.
What I’m saying is this:
1. The 40 decades of destruction of manufacturing in the US through tax policy and other policies that encouraged Corporate America to offshore manufacturing was a terrible thing to do, and now we’re dependent on China and other countries that could — and did briefly during Covid — shut down our economy. That’s a total no-go and needs to be reversed. Trump 1 understood this and implemented his first round of tariffs; Biden understood this and implemented his subsidies to Corporate America; Trump 2 understands this…
2. The better way to reverse the destruction of manufacturing in America are tariffs, where companies pay for their misbehavior (offshoring to fatten their profit margins and avoid income taxes in the US) than hundreds of billions of dollars a year in cash and tax rebates and tax credits handed from the taxpayer to the richest companies in the world, which was Biden’s model.
3. Tariffs are not a tax on consumers but on companies, and whether or not they can pass it on to the consumer depends on market conditions. This is really important, and I’ve been saying this a million times to lean against the lies and BS in the media that then are spread here in the comments.
4. I have my special tariff inflation monitors (charts) that I now show in my inflation articles, and we will keep a close eye on the extent to which tariffs will make it through to consumer price inflation. Whether or not, and to what extent tariffs will hit consumer price inflation is highly uncertain. What we do know is that we had a HUGE inflation spike during the free-money era, and any impact from tariffs is going to be minuscule compared the impact of the inflationary policies of the free-money era.
5. Tariffs are also and secondarily the best way to generate government receipts, and by golly, we need to increase government receipts.
6. No, we don’t want government to go crazy about tariffs, and we would like to dial down the crazy chaos and nonsense during the implementation, but there is so much anti-tariff resistance from the billionaire class and Corporate America and from the greased palms in Congress that crazy chaos that keeps everyone off balance may be the only way to get anything done here.
We can agree that tariffs are money going to the government. I guess that is ok now.
I think POW POW has been more concerned with unemployment than inflation.
Will tariffs cause unemployment to rise? There’s the rub.
Yes, the government made huge mistakes over 40 years and destroyed US manufacturing. We didn’t listen to Ross Perot. But it looks like Trump is going to make a huge mistake too. The equivalent of downshifting from fifth gear to first. He may just slow things down, but he might just destroy the transmission. Walmart raised the price of bananas by 8 percent, the tariff was 10 percent. Today Trump said that he was imposing a tariff of 36 percent on Thailand, effective August 1. We buy Thai jasmine rice, which is essentially not produced in the US. We will see what happens. But I’m expecting that we are going to need a new transmission.
“Walmart raised the price of bananas by 8 percent, the tariff was 10 percent.”
LOL, when was Walmart’s last price hike on bananas? A year ago, long before tariffs were discussed, Trader Joe’s raised bananas by 21%, from 19 cents to 23 cents per each, after not having raised the price for two decades. What does that – 21% price increase over 20 years – tell you about inflation and tariffs? NOTHING. You’re just bullshitting.
In terms of rice, buy California-grown rice. You can get all kinds of rice grown here, Basmati rice, Jasmine rice, Japanese sushi rice, Arborio rice…. There is no reason to avoid US-grown food of the kind that grows in the US (bananas don’t). That’s the whole purpose of tariffs. And if you still prefer to buy foreign-grown rice over US-grown rice, well fine, buy it, you’re a free man. But I hope you get whacked by big-fat tariffs.
Just looked it up: The largest rice-producing states are: Arkansas, California, Louisiana, Mississippi, Missouri, and Texas