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 charts further down – 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 by far more than their costs went up, and consumers paid those prices, 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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So, the company that can provide a domestic product at a competitive price and profit does not have to fear the tariffs? It’s only a tax on those who are dependent on importing.
Such a domestic company would have to fear the tariffs being reduced or eliminated, because tariffs protect domestic producers from foreign competition. That’s why tariffs are a protectionist policy position.
Tariffs are also a tax on the consumer, who might prefer buying cheaper goods imported from places that have lower production costs than domestic producers. That’s the position of globalization advocates. Protecting producers from competition means less competition among producers, which is generally a loss for consumers.
For a given product, tariffs generally benefit domestic producers and hurt consumers and importers, assuming the good could be produced cheaper elsewhere.
However, anti-globalization (protectionism) advocates would probably argue that higher prices are worth paying because part of what you’re paying for is local economic production. Ironically, that has been an argument on the left and fringe left for decades, through ideas like buy local, small is beautiful, local currencies, the velocity of money, etc.
“Such a domestic company would have to fear the tariffs being reduced or eliminated, because tariffs protect domestic producers from foreign competition.”
This is somewhat offset by the initial capital costs (the building of the factory) being already paid. That’ll be part of the math in deciding whether to shift production or not.
I’d settle for American companies not based in Dublin, Grand Cayman, or some other BS. Or maybe Disney not whacking Americans (early) from training their foreign-born replacements for the same job a number of years back…
So, for me, while I don’t care either way about the tariffs nor the corporate profits, I get sick and tired of all these scammy practices going on that are just simple BS.
If the tariffs are the mechanisms that work to put an end to this crap, and happen to make companies that are doing an end-around on corporate taxes, actually pay up, then awesome. And no, I’m not a bleeding heart lib or socialist shmoe… Just an average Gen-X dude that’s calling some BS out. Like the article mentioned- if they have cash for share buybacks, then they have cash to burn… Or pay more in tariffs.
No. This is very simplistic and headlines-based view of economy.
1/ there are different kinds of tariffs, and different goal tariffs. Short term tariffs are heavy-handed and have little to do with economy — they are a political tool to force an opponent to implement certain policy you desire. Long term tariffs differ by goal: some are designed to simply avoid competition (bad), others — to level the playing field, yet others — force local production. Let’s talk the last two.
2/ Leveling the playing field. See, competition is never fare. Say, Canadian aluminum or lumber. Is Canadian lumber cheaper/more competitive because Canadians (fine people, btw) are simply better, smarter, more disciplined, etc — smarter competitors — than fat and lazy USers? Maybe. But also maybe because Canadian producer is pumped up by the Canadian socialist (more interventionist) government. In my mind, Canada to US is what Russia is to EU — raw materials and energy. These industries are known as “strategic industries” and government can’t let them fail (like US can’t let banks fail). So they have levers to pull (any, or all, or any combination): subsidized healthcare, low/free interest loans, softer taxation/environmental regimes, favored labor protection regulations, and so on. Now let me ask again — are you sure Canadian aluminum producers are more competitive, or simply more propped? The answer is — neither of us knows. But what we do know, is that mining aluminum builds infrastructure that can be shared to mine for rare earths. In fact, mining for rare earths on its own is prohibitively expensive, and there’s a reason why China owns pretty much all of it. Consumer will pay less short term, but inevitably pay more long term, once local competition is gone.
2/ Reshoring. Manufacturing is a backbone of any robust economy. Services are great, but the backbone is still production. There’s a reason why China manufacturing is ~40% of GDP and US is ~8%. Globalists said that US will design things and someone will produce or designs. As usual: “sounds great — doesn’t work”. Turns out, people who actually make things, are good at improving them, and are just as smart as US (of not smarter) to design more and better things. Net result — all of production and design moved there, and the best people in US can do — talk social issues, which does not help to fix bridges, etc. Things got so bad, that we couldn’t produce masks during pandemic — that’s an eye opener.
3/ Tariffs are tools. Wield them carefully — you are rebalancing economy and trade, fixing social and mental issues, etc. Misuse/overuse them — and suddenly everything looks like a nail — you hurt consumers and suffocate trade. Historically, greedy C suite was on zero-tariff policy (maximizes short term profit), so there’s little fear of overdoing tariffs (requires a lot of political will to resist C suite and globalists).
4/ Rebalancing trade and economy requires blanket tariffs. If you do targeted tariffs — corporations work around them: you tariff Mexico cars? Companies route Chinese cars through Canada or Belgium. They will assemble EVs where you want but the magic sauce (and all the complexity) is inside the battery pack, etc. Tariffs have to be full bore, across the entire economic perimeter.
My personal take — what happened is nothing short of amazing. Economically — I’m very excited for the next 4, but much better 8 or 12 years (will vote for the same economic policy).
Is there any accountability mechanism for disclosing where the collected tariff money is being spent?
Better question:
Is there any accountability mechanism for disclosing where _all tax money_ is being spent?
The answer is “resounding no”. If there was accountability – a.i.d. staff would not be just fired, 99% of them would be jailed.
Money is fungible. If you think the casino money is financing the school like they claim, then you are too gullible.
Where’s it being spent? Did you miss the big beautiful bill? This pays for a fraction of that. The government still has a massive deficit that is only increasing with that bill, it’s just falling into the widening black hole that is US debt.
The way the tariff rates bounce around on the whim of one DC Celebrity, there is no way of really figuring in advance what the tax being collected will amount to.
My guess is that tariffs are just a distraction.
My understanding is that the tariffs are put in place to onshore domestic manufacturing. If this is effective, then tariff revenue will not stay elevated as you seem to suggest.
Bingo!
Better question:
Is there any accountability mechanism for disclosing where _all tax money_ is being spent?
The answer is “resounding no”. If there was accountability – a.i.d. staff would not be just fired, 99% of them would be jailed.
Please ignore — that was meant to be a reply to another post
I’m seeing the headlines about 50% coffee tariffs followed by photos and tweets implying that it will lead to a 50% increase in the cost of the coffee bought at Starbucks and similar places. Do people realize how little of the cost of those coffee-flavored beverages are attributed to coffee? The best article I could find says that between 3 and 4% of the company’s revenue is spent on beans. Even if that goes up by 50% for tariffs, that would still mean between 4.5 and 6%, which is an almost negligible part of your daily morning beverage. Something tells me that a 10% hike is more about padding the bottom line than Trump’s tariffs.
You’re right, poorly written articles. But the vast majority of coffee purchased is also not from Starbucks and is going to rise in price. I get mine in bulk from Costco, it’ll pretty much be a straight pass-through to me as a consumer.
Although saying that, it won’t be 50% in the longer run as they’ll just switch away from Brazilian vendors. More likely 15-25%. Still, I don’t usually like having to pay an extra 20% tax on goods I purchase.
The CIT ruled that these tariffs are illegal. At oral argument, the Federal Circuit recently exhibited a fair amount of skepticism about their legality. I’m wondering if the Wolfosphere has an opinion on what’s likely to happen when the Supreme Court gets ahold of this issue.