U.S. Tariff Revenue Surges 327 Billion, Threatening Economic Growth

The United States has seen a significant surge in tariff revenue, with annualized figures reaching 327 billion dollars. This substantial tax burden, whether borne by producers or consumers, is expected to have a negative impact on economic growth. The tariff revenue, which accounts for 1.1% of the GDP, is equivalent to 65% of the projected 2024 corporate tax revenue and 32% of non-withholding personal income tax revenue. This suggests that both individuals and businesses in the U.S. are facing a tax burden akin to a significant tax increase.

If businesses absorb the full cost of tariffs, the profit margin for non-financial enterprises in the U.S. could drop from 13.8% to 11.7%, falling below the average of the past 15 years. This scenario highlights the severe pressure that tariffs are placing on corporate profitability. The impact of tariffs on business earnings is becoming increasingly apparent, with the annualized tariff cost equivalent to 15% of the post-tax profits of non-financial enterprises in the first quarter of 2025. Currently, the profit margin for these enterprises is around 12.2%, which is close to the 15-year average.

If businesses fully absorb the tariff costs, the profit margin would decrease by 0.5 percentage points below the 15-year average. If 75% of the tariff costs are passed on to consumers, the profit margin would remain 1.1 percentage points above the 15-year average. Passing on 50% of the tariff costs to consumers would result in a profit margin 0.6 percentage points above the 15-year average. Passing on 25% of the tariff costs to consumers would bring the profit margin back to the 15-year average. If all tariff costs are passed on to consumers, the profit margin would be 0.5 percentage points below the 15-year average.

The report emphasizes that regardless of who ultimately bears the cost of tariffs, this substantial tax burden will not support economic growth. This aligns with the view of economists who predict a downward risk for the U.S. economy. In addition to tariff pressures, other economic indicators also show signs of slowing down. For instance, passenger air traffic, as reported by the Transportation Security Administration, grew by only 1.7% year-over-year by May, far below the pre-pandemic growth rate of approximately 6%. In February, passenger traffic decreased by 3.0% year-over-year, reflecting weakened consumer activity.

Based on this analysis, the recommendation is to maintain a bullish stance on U.S. Treasury bonds, as the risk of economic downturn increases, providing further room for interest rates to decline. Additionally, a bearish outlook on the U.S. dollar is advised, given the deteriorating economic fundamentals and the expected shift in Federal Reserve policy towards easing. Investors are advised to monitor market movements around July 9 and take advantage of the tariff news-driven increase in yields to add to their long positions in U.S. Treasury bonds.