What fiscal crisis?
The US ran a surprise surplus in June, according to the monthly Treasury statement released late this week. Specifically, the federal ledger was in the black to the tune of $27 billion last month, compared to red ink of $71 billion in June of 2024. Wall Street expected a $30 billion deficit.
Spoiler alert: This is a meaningless factoid. For the fiscal year so far, America’s budget shortfall is nearly $1.34 trillion. The figure below shows the breakdown nine months into FY2025.
Although the Trump administration’s keen to insist tariff “revenue” can help make up the difference, the chart speaks loudly to how laughable that proposition really is.
Note that the $108 billion in customs receipts (a tally that includes refunds) collected so far is already a record for any fiscal year. Scott Bessent suggested this week that Treasury could ultimately take in $300 billion from tariffs.
Even in Bessent’s “optimistic” scenario (and “optimistic” is a misnomer considering tariffs are actually collected as a tax on American importers who’ll eventually pass those costs along to consumers, at which point you’ll be paying the tariffs), Trump’s levies have no hope whatever of plugging the gap.
A decade into the Trump era, I imagine I’ve passively purged (i.e., by pissing his supporters off) a majority of readers inclined to believe Trump’s manifold falsifications. But I do get the sense there a few of you still unwilling to accept that he’s so much of a grifter that he’d wittingly lie about something as easy to disprove as this. But be advised: He would, and he does.
So, let me spell it out: The idea that Trump’s going to extract enough money from US importers and consumers to plug America’s budget gap is a stone cold, demonstrable lie, with no hope of ever being any semblance of true outside of a scenario where somehow, he’s able to sustain embargo-level tariffs without collapsing the economy.
Note the emphasis. If you collapse the economy with draconian tariffs, tax revenues will fall. For example, revenues from individual income taxes plunged 16% across OECD economies during the financial crisis, according to The Tax Foundation. Corporate income taxes dropped almost 30%.
See the problem? You could end up chasing your own tail. You slap on tariffs to bring in more revenue, but the tariffs hurt growth, which reduces tax receipts, compelling you to raise tariffs even higher to plug the holes, but higher tariffs hurt growth even more, leading to even lower tax receipts and so on.
If you think Trump’s thought that through, I have some potentially distressing news for you: The only kind of second-order thinking Trump does happens when he’s asked, “Do you want fries with that, Sir?”
On Saturday, bright and early, Trump said he’ll hit the EU and Mexico with 30% tariffs starting from August 1 unless they do more to placate a man whose demands are deliberately vague and, on the rare occasions when you can discern a specific ask, impossible to meet.
So, can we just have ICE arrest him and maybe Miller and a few others and send them to South Sudan as suspected illegal immigrants. My understanding is that this is a civil matter so no need to get his lawyers involved.
Our car dealers will love these new Mexican tariffs. Mexico makes more of what we think of as American cars than we do here in the US and exports them to us. The new tariff will make GM, Ford and others so very happy.
Blue Horseshoe loves used car dealers.
And Anacot Steel.
H-Man, when your as smart as he is, you never muddy the water with second order thinking unless of course, it is to super size.
So far the markets haven’t really reacted to his most recent round of tariff outbursts, you wonder if at some point he really ramps it up just to get some sort of reaction.
Yes, he does exactly that. He has to be THE news story everyday or he’ll start heaving ketchup bottles.
I believe the tariff nonsense has run its course, at least in terms of its original purpose. Trump got his big deficit bill passed, so no longer has to pretend that tariffs will ensure a new golden age of riches for everyone at the expense of the ingrate foreigners who have treated us so badly. The budget deficit will explode and tariffs won’t make much of a difference, even if they reach levels “no one has ever seen before.”
Unfortunately, Trump has found an autocratic lever that Congress and the courts let him play with for too long, and now he refuses to let it go. Tariffs will transform from a bogus tax cut offset to just another projection of Trump’s omnidirectional power, to be wielded whenever he needs an ego boost or leverage, or, just back to the default of he wants to get his beak a little wetter.
Excellent chart design dude. I can tell you take pride in that, so kudos. The red, white, and blue color scheme, and the highlight for the tariff column hit all the right notes.
As discussed a while ago, divide annual run rate of tariff collection by S&P 500 net income and you get something like 2200 bp. Divide it by total US economy corporate net income, a much larger figure, and you get something like or greater than 200 bp.
Tariffs have to show up somewhere.
It is not showing up in lower import prices as Trump promised – some hapless foreign suppliers to WMT are surely cutting prices but in aggregate it’s not showing up in data.
So it has to show up in corporate margins or inflation.
Maybe the S&P 500 is somehow immune and tariffs’ margin impact is entirely borne by smaller and private companies? It would take longer for that to show up and it will be in NIPA data, bankruptcies, small business surveys, employment, etc rather than one big clear Data Point.
Maybe the transmission of tariffs on the smaller part of the PPI basket (goods) and thence to larger part of the PCE/CPI baskets (services) takes many months and gets diluted by, say, the slowing labor market’s impact on wages? Inflation reacceleration might come just in time for the first FOMC meeting under its next chair.
One way or another, $400BN in annual tariff run-rate can’t simply disappear like by magic. I’m not an economist to be able to know where it will show up or when, but I have faith it will eventually show up.
I also have (less but still meaningful) faith that it won’t be this quarter. Party On, then.