President Donald Trump\u2019s tariffs are generating revenue for the federal government at an annual rate of about $300 billion. While that sounds like a promising source of funding, tariffs went into effect with the stroke of a pen, and they can go away with one, too. And in the next recession, there will be calls for tariff relief to help consumers, Moody\u2019s Analytics chief economist Mark Zandi said.<\/p>\n
The federal government is on pace to reap a significant amount of revenue from President Donald Trump\u2019s tariffs, but they may not be a reliable source of funding, especially in a recession, according to Moody\u2019s Analytics chief economist Mark Zandi.<\/p>\n
The average effective tariff rate is now 20.2%, the highest since 1911, according to Yale\u2019s Budget Lab<\/a>. Based on the revenue tariffs are generating so far, they should bring in about $300 billion annually.<\/p>\n Though that\u2019s not nearly enough to eliminate the federal budget deficit, which is expected to widen to almost $2 trillion this year, it\u2019s still a meaningful amount. So why not rely on them as a long-term revenue source?<\/p>\n On last Wednesday\u2019s episode of the Facing the Future podcast<\/a> from the Concord Coalition, a nonpartisan group focused on reducing the national debt, Moody\u2019s Analytics chief economist Mark Zandi pointed out tariffs were imposed via executive order and can be changed in an instant.<\/p>\n In addition, the so-called reciprocal tariffs are facing court challenges on the argument they\u2019re not covered under the International Emergency Economic Powers Act.<\/p>\n As a result, Zandi cautioned against making other tax and spending decisions based on the assumption those tariffs will remain in place. And if the economy goes south, then all bets are off.<\/p>\n \u201cI suspect that the next time the economy gets into recession\u2014and it will, maybe not this go around, but at some point it will\u2014whoever\u2019s president is going to be under significant pressure to cut those tariffs because they can do it under executive order. They don\u2019t need to go to Congress to get a piece of legislation,\u201d he added.<\/p>\n A downturn may even come sooner rather than later. Earlier this month, Zandi warned\u00a0the economy is on the brink of a recession<\/a>.<\/p>\n On Sunday, he followed that up, saying while the U.S. isn\u2019t in a recession now, more than half of the roughly 400 industries tracked in government data are already shedding workers<\/a>, a phenomenon that\u2019s accompanied previous downturns.<\/p>\n Meanwhile, most of the cost of tariffs is being passed on to consumers, meaning those import taxes are effectively sales taxes. Goldman Sachs calculated that around 67% of the tariff costs are being passed on<\/a> to consumers.<\/p>\n Story Continues <\/p>\n \u201cThere\u2019s going to be a strong incentive on that president\u2019s part to say, \u2018Okay, I\u2019m going to cut the taxes,\u2019\u201d Zandi told the Concord Coalition\u2019s Carolyn Bourdeaux and Robert Bixby.<\/p>\n While Trump has floated the idea of using tariff revenue to provide some kind of dividend or rebate to Americans, the White House insists consumers are not shouldering tariff costs and that foreign exporters are.<\/p>\n Either way, Zandi said he thinks it\u2019s highly unlikely that tariffs will generate $300 billion a year over the next decade and warned against counting on a windfall like that.<\/p>\n \u201cIn fact, if you did do that, we\u2019re setting ourselves up for an even more dire, darker fiscal situation down the road, because I just don\u2019t think those tariffs are going to be around 10 years from now,\u201d he added.<\/p>\n