At this pace, tariffs will raise an additional $230 billion in corporate taxes a year. US nonfinancial corporate profits spiked to $3 trillion a year.

By Wolf Richter for WOLF STREET.

The amount in tariffs collected by the government in July rose to $28 billion, from $26.6 billion in June, $22.2 billion in May, $15.6 billion in April, and $8.2 billion in March, when collections from the new tariffs began.

In the three months from May through July, $77 billion in tariffs were collected. If collections continue at this pace, $308 billion in tariffs will be collected in the 12-month period.

In the fiscal year ended September 2024, the government collected $77 billion in tariffs. So the new tariffs would bring in an additional $230 billion in revenues.

That $230 billion in additional tax receipts may not sound like a lot within the fiscal fiasco that the US government has constructed.

But corporate income taxes collected in the last fiscal year fell to $366 billion (from $393 billion in the prior fiscal year). And this additional $230 billion from tariffs would raise the amount in taxes that companies pay by around 60%!

The tariff data is from the Monthly Treasury Statement (MTS), except for July, which is from the Daily Treasury Statement (DTS) for July 31, released on Friday. The DTS lists “customs duties” and “certain excise taxes” combined as one line item. The MTS – the July edition will be released on August 12 – separates “customs duties” from “excise taxes.” The difference between the DTS figure and the MTS figure reflects the excise taxes and has averaged $1.6 billion a month for the past 12 months. So the July figure here is the DTS amount of $29.6 billion minus $1.6 billion in estimated excise taxes.

Tariffs are taxes paid by businesses on goods that are imported, on their cost of the imported good. Whether or not businesses can pass them on to consumers to push up consumer price inflation in goods depends on market conditions – specifically on consumers.

If consumers refuse to pay whatever, if they shop around and compare, and buy from a competitor or forgo purchases whose price has jumped, then companies cannot pass on the tariffs because if they raise prices, their sales will fall, and they will lose market share.

Which is what is currently happening in new vehicle sales. After automakers and dealers jacked up prices during the pandemic – the CPI for new vehicles soared by 21% in two years — prices hit a ceiling. It’s a tough market. New vehicles have become very expensive. There is not a lot of demand at these prices. Automakers and dealers have to offer deals to make sales. It’s a market-share battle.

Some models have 65% or 70% or more in US content, and have far less tariff exposure than imported vehicles with near-zero US content, or vehicles assembled in the USA with mostly imported parts that have little US content.

GM imports vehicles from Mexico, South Korea, China, and Canada after having globalized its production when it emerged from bankruptcy with the help of a government bailout. It said in its earnings warning that it expects tariffs to cost it $5 billion this year. But no biggie. It will continue to incinerate billions of dollars in cash on share buybacks.

Ford raised its estimate for its costs of the tariffs for this year to $2 billion. They have to compete with models from Tesla, Honda, Toyota, Hyundai-Kia, etc. that are assembled in the USA with much higher US content.

For automakers and dealers, the problem now is that consumers are no longer willing to pay whatever. The 21% price spike in 2021 and 2022, when automakers and dealers amassed big-fat record profits, was only possible because consumers, loaded with free money, where willing to pay whatever, including the odious addendum stickers that appeared at that time. But that was then, and this is now. The free money is gone, and consumers are no longer willing to pay whatever.

The Consumer Price Index for new vehicles for June declined for the third month in a row, seasonally adjusted (red line). Not seasonally adjusted, it eased for the second month in a row (blue line), and was about flat year-over-year. Here are the details of our CPI analysis.

Companies always try to raise prices and get the maximum price possible. They use “dynamic pricing” online where prices can change from minute to minute, based on various factors, including what is known about the buyer. They hike prices and then offer “discounts,” they’ll do anything they can to make comparison-shopping harder. There is nothing new about that, and tariffs won’t change it. Companies will always try to get the maximum price possible.

What keeps price increases limited, in normal times, are vigilant consumers that are not willing to pay whatever. That’s how a free market operates.

The free-money era of 2020-2022 destroyed that balance, and inflation and retailer profits – see chart at the bottom – exploded.

Durable goods prices overall barely budged in June from May, and year-over-year were up just 0.6%.

The durable goods CPI had exploded by 25% in two years from mid-2020 to mid-2022 during the free-money era. Then prices declined for two years (negative CPI). But from September 2024, prices inched up again through January, and since then have been roughly flat.

Apparel and footwear are also heavily exposed to tariffs. The CPI for apparel and footwear rose by 0.4% month-to-month in June but only undid the equal drop in May, with no price change over the two-month period. Year-over-year, the CPI for apparel and footwear declined by 0.5%. Consumers are in no mood to pay whatever.

Some prices of goods rose in recent months while others declined. Companies are always trying to raise prices. It’s up to the buyers to walk away. That’s part of a free market.

If a company’s sales crater and its market share shrinks because it raised prices and enough ticked-off consumers shifted purchases around, then that’s an expensive lesson.

So this is a very tough situation for companies to be in. To what extent tariffs can be passed on to consumers is unpredictable and depends on market conditions – on the consumers.

Corporate profits are an essential factor in the equation of tariffs.

Pre-tax profits at ecommerce and brick-and-mortar retailers of all sizes exploded during the pandemic because consumers were willing to pay whatever, and retailers jacked up their prices, and consumers paid them, and that’s where part of the inflation came from.

In Q1 2025, pre-tax profits at retailers were up by 138% from Q1 2020. Here is our discussion and charts of corporate profits by industry.

Pretax profits of all nonfinancial domestic industries rose to nearly $3 trillion annual rate in Q1 2025, up by 122% since Q1 2020. They include retailers, wholesalers, manufacturers, companies in information, companies in business, professional, and scientific services, etc.

The high-inflation era came from prices being jacked up, and profits exploded because companies raised prices far faster than their costs increased. Tariffs are now beginning to reverse some of those profits.

The primary goal of tariffs is to change the math in corporate investment decisions so that enough manufacturing gets developed in the US over the years to achieve a roughly balanced trade wit the rest of the world.

Many big companies have already announced new manufacturing projects in the US. A factory construction boom took off in 2022, and over the past two years, spending on factory construction about tripled to a range of $18 billion to $20 billion a month, just for the buildings, not including the costs of the industrial robots and equipment that can dwarf the costs of the building.

These efforts take years, from initial decision to mass-production. Even shifting production to an existing plant in the US takes time.

So there is a long way to go before the trade deficit (negative net exports) in goods and services of over $1 trillion a year – the result of four decades of reckless globalization by Corporate America and government encouragement – turns into balanced trade.

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