The one undeniably positive aspect of the disruption of global trade relationships by Washington is the extraordinary increase in tariff revenues.
The U.S. Customs and Border Protection agency is collecting tariffs at a rate of $30 billion per month compared with the $6.8 billion per month normally collected from importers.
That means that in the six months since the tariffs were enacted, CBP has already collected roughly $110 billion more in custom duties than it otherwise would have.
Before this year, custom duties comprised about 1.3% of total government revenue. Customs receipts are now approaching 4% of total revenue and would move higher if tariffs were to continue.
But there’s a catch. As happened during the 2018-19 trade spat with China, when a good portion of that revenue was used to subsidize American farmers hit by tariffs, whatever revenue gains are generated this time around will most likely be redirected to support soybean farmers whose exports to China have collapsed, or used to pay for assistance to lower-income households in the U.S.
Bailing out American farmers would result in tariffs becoming another transfer payment, taking money from importers and the public and giving it to a protected group, which then becomes difficult to end.
Second, there is a chance that the Supreme Court may declare tariffs unconstitutional, forcing the government to refund the tariff money to importers.
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If that happens, the loss of revenue would further strain the U.S. budget, with the increase in debt pressuring long-term interest rates higher.
At the same time, it would restore the revenue and profitability of corporations that have absorbed the tariffs, which would increase their tax payments.
For the importers that were able to pass along the tariffs to consumers, it is hard to imagine households directly benefitting from the rebates other than the possibility of lower prices in the future.
We would also anticipate that the administration would declare almost anything having to do with China as a national security risk under Section 232, which would result in a far smaller rebate to U.S. corporations that have absorbed the tariffs through thinner margins.
