Jeremy Horpedahl
In recent months, tariff revenue in the US has started to ramp up. Despite Trump’s on-again, off-again approach to implementing one of his signature policies, some of the tariffs have already gone into effect. And tariff revenue is starting to show up in the revenue data. In the most recent monthly revenue report from the US Treasury, customs duties raised $30 billion in August 2025—that’s more than corporate income taxes in the past two months, and more than four times the amount collected in August 2024. Treasury Secretary Scott Bessent told the Supreme Court that the federal government could be collecting up to $1 trillion in tariff revenue through next June, though that figure is significantly higher than most economists estimate.
This new revenue has led many supporters of the tariffs to claim the tariffs are working, even to go so far as to say that tariff critics were wrong. But tariffs and tariff revenue are not the success that supporters claim. First, we must always recognize that tariff policy is always torn between two competing objectives: protectionism and tax revenue. A tariff that is successful in protecting domestic industries won’t raise much revenue, so an apparent windfall of tariff revenue isn’t truly “working” in the sense that protectionists want it to succeed.
Even on the revenue question, there are three important notes of caution to give context to the recent massive increases in tariff revenue:
The revenue effect is lower than reported.
Most of the taxes are paid by Americans.
Tariff revenue is still a small part of total federal revenue.
The Revenue Effect is Lower Than Reported
Is the federal government really raising four times as much tariff revenue as it did a year ago? No. The headline numbers are deceiving, for two reasons.
First, tariffs will provide some drag on economic growth. Estimates of revenue from new taxes typically distinguish between conventional (or static) and dynamic approaches. The conventional approach assumes nothing else changes in the economy due to a new tax, which is unrealistic for any tax, but especially tariffs. The dynamic approach tries to take into account how the behavior of firms, workers, and consumers will adjust in response to new tariffs.
Knowing exactly the ways in which economic agents will respond to new tariffs is hard to predict precisely, but we can look at a few reasonable estimates. The Tax Foundation estimates that overall, the next decade, all of Trump’s proposed new tariffs will raise $2.3 trillion under the conventional approach (no change in behavior), but only $1.5 trillion under the dynamic approach, or about one-third lower. The Yale Budget Lab suggests a more modest effect, with tariff revenue falling from $2.6 trillion under conventional assumptions to $2.1 trillion when considering economic effects—a roughly 20 percent decline. We need not try to adjudicate over which model is exactly correct, but a range of 20–33 percent less total tax revenue from the negative economic impacts of tariffs is a reasonable range.
The dynamic revenue estimates of tax revenue are smaller because they assume that tariffs shrink the size of the economy. But even if you don’t believe this will happen, there is a second important way in which tariff revenues are smaller than advertised. In a paper for the American Enterprise Institute, Kyle Pomerleau and Erica York describe the “excise tax offset” effect of tariffs. As they describe it, tariffs create “a wedge between the price consumers pay and the price producers receive. The wedge reduces the real tax base of income and payroll taxes, reducing the amount of revenue that these taxes collect.”
If we assume, as Pomerleau and York state, that factor incomes are taxed at a marginal rate of 25 percent, then tariff revenue is actually 25 percent smaller than advertised, because income and payroll taxes have fallen in response to the smaller tax base. Note that this may sound similar to the dynamic revenue effect, but it is separate and, in fact, stacks on top of the dynamic effect. Because income and payroll taxes are applied after tariffs, by definition the new tariff revenue is partially offset by falling revenue elsewhere in the economy. That’s true even if you don’t believe tariffs will shrink the total size of the economy – they still shrink the tax base because of this offset effect.
Are we seeing these dynamic effects and revenue offsets in real time? This can be difficult to say, given the massive amounts of revenue the federal government collects, the small role tariffs play in overall revenue (see more below), and that in a $30 trillion economy there are always millions of little things changing for reasons we can’t explain. Nonetheless, the fact that the total federal revenue in July 2025 was only $8 billion larger than in July 2024, despite about $20 billion in new tariff revenue, is possible evidence that we are already seeing those offsets. Of course, the economy is larger than last year, and changes to the timing of tax payments mean we shouldn’t read too much into one month of data, yet it does suggest that higher tariff revenue isn’t as big as advertised.
Most of the Taxes Are Paid by Americans
Should Americans be celebrating all of this new tax revenue? No, for one major reason: Americans are paying most of it.
While a simplistic understanding of tariffs is that they are taxes on foreign countries, this is wrong in several ways. First, it is literally wrong, in a legal sense. The tax is paid to the federal government by the company or entity importing the goods, which is usually a US company or a US consumer. They are the one who literally writes the check (or electronic equivalent) to US Customs and Border Protection.
Economists, though, often talk of the incidence of a tax: not merely who writes the check to the government, but whose real income is reduced by the tax. To take a simple example, if a retail sales tax is legally the responsibility of the business to write the check to the government, but instead the business is able to raise the price of the good by the full amount of the tax, then the economic incidence of the tax is actually on the consumer—not the business that writes the check to the government. Whether a business is able to fully pass that tax forward to consumers is determined by what economists call elasticity, or how much consumers and producers can change their behavior in response to a tax. For example, if consumers have lots of good substitutes they can switch to if the price of that good increases, then we say their demand is very elastic—and therefore it is very hard for the business to raise the price in response to the tax.
When it comes to tariffs, there are at least three major groups we must consider when thinking about economic incidence. Even though the importer—the US company bringing it into the country—is the one legally paying the tax to the government, it may or may not be the one bearing the economic burden of the tax. In addition to the US company, we must also consider the effects on US consumers (do they pay higher prices?) and foreign companies (do they receive lower prices from US companies?).
As with tax revenue, precisely identifying in real time who is bearing the burden of the new Trump tariffs can be as much an art as a science, but there are early estimates suggesting Americans are bearing most of the burden. Analysis by Goldman Sachs shows that the burden of tariffs in June mostly fell on US companies—about 64 percent of the total—with US consumers absorbing 22 percent of the burden and just 14 percent falling on foreign companies. That means 86 percent of the total burden is on Americans, counting both companies and consumers. Goldman estimates that by October, much more of the burden will shift to US consumers (perhaps 67 percent of the total), with most of the burden (about 75 percent) falling on the US. Also, prices of imported goods haven’t fallen—in fact, they have risen to some extent—suggesting that the US is bearing the burden of the tariffs in place so far.
Real-time estimates like these are useful if a bit uncertain, but we can look to Trump’s first-term tariffs for additional evidence. Those tariffs are far enough in the past that academic researchers can more carefully identify the incidence of the tariffs on Americans. The bottom line: almost all of the burden from the first-term tariffs fell on Americans, not foreign firms. Economists Mary Amiti, Stephen Redding, and David Weinstein looked at tariffs imposed in 2018, and they found that all of the incidence of these tariffs fell on US consumers and importers. Pablo Fajgelbaum and co-authors found “complete pass-through of tariffs to duty-inclusive prices,” meaning that the burden fell completely on Americans. Alberto Cavallo and co-authors found in a 2021 paper that most of the impact of the Trump tariffs was on US firms. Finally, a paper by Aaron Flaaen, Ali Hortaçsu, and Felix Tintelnot focused specifically on the tariffs placed on imported washing machines – their findings were similar to the other papers looking at a larger group of tariffs, with US consumers bearing all of the burden.
While no one study should be taken as definitive, the totality of economic research on the tariffs imposed during Trump’s first term shows that most, if not all, of the burden fell on Americans, though there is some disagreement about whether it was US firms or US consumers who shouldered the biggest effect.
Tariff Revenue is Still a Small Part of Total Federal Revenue
Another stated goal of the tariffs is to help close the federal budget deficit, or perhaps lower other taxes. While these may be laudable goals, and every $1 raised in tariff revenue could theoretically be used to either lower the deficit or other taxes by $1 (with the caveats I outlined in the first point above), tariff revenue will be too small to make a real impact on the overall budget situation.
To see this context, consider that in the current fiscal year, which began in October 2024, the federal government has collected $136 billion in customs duties. To be sure, this is more than double the amount collected in the prior fiscal year through July: $63 billion. However, it is still much smaller than the budget deficit so this year, which is over $1.6 trillion. Tariff revenues have been less than one-tenth of the budget deficit, as a chart from the Treasury Department’s monthly report shows.
Of course, tariff revenue has only kicked in the past few months, but even if we generously assume that going forward tariff revenue is 3–4 times as much as the recent past, we are only talking about $100–200 billion of additional revenue, when budget deficits are approaching $2 trillion annually. That ballpark estimate comes pretty close to what the Tax Foundation estimates for new tariff revenue in 2026: $210 billion on a conventional basis, and only $139 billion on a dynamic basis. These new tariffs are a drop in the bucket of the overall revenue problem, with some individual months of 2025 (such as May and July) having larger budget deficits than the annual amount these tariffs will likely collect—again, with the tariffs mostly coming from Americans.
Conclusion
While tariff proponents are celebrating the new revenue starting to trickle in, it’s important to keep in mind that this revenue is smaller than advertised, largely comes from Americans rather than foreigners, and won’t do much to solve the US’s long-term fiscal challenges.
