Investing.com -- Since enacting global reciprocal tariffs on April 2nd, President Trump has often commented, “we’re making lots and lots of money!” referring to the levies the U.S. Treasury is collecting on imported goods.
Data from the U.S. Treasury Department confirmed that tariff revenue has indeed surged. The Treasury has collected a record high of $15 billion in the first 16 business days of April (through April 22), more than double the amount collected for the same period last year. On April 22nd alone, the Treasury collected $11.7 billion.
Even with the surge in tarrif revenue, however, it may not be enough to support the planned tax cut extension, Standard Chartered strategist Steve Englander said. Further, the tariffs could have a nasty side effect - inflation.
"USD 15bn is a non-negligible amount, but it is slightly below our recent estimated range and insufficient to offset the fiscal cost of the planned Tax Cuts and Jobs Act (TJCA) extension,” Englander commented. “Moreover, there is a risk of a noticeable – and possibly persistent – pop in inflation, without generating enough revenues to pay for tax cuts and a flatter deficit path.”
“So far, the data suggests higher revenue collection, but that the increment is not a game-changer for government funding,” he added.
Englander highlighted that the potential inflationary impact of tariffs on the United States economy is less clear. He highlighted that although the United States imported approximately $3.3 trillion worth of goods in 2024, and the nominal personal consumption expenditures (PCE) stood at around $20 trillion, the pass-through of an additional $130 billion in tariff costs could increase import price levels by about 4%. This scenario, if tariffs were fully transferred to consumer prices, would result in a one-time 0.7% rise in the PCE price level.
Englander explained that the actual price impact might be significantly lower if these additional tariff costs were absorbed by either U.S. business profit margins or foreign exporters. He also noted that many companies might delay price increases in the short term with the hope that the tariffs would be reversed. However, he warned that if high tariffs remained, the pressure on prices could eventually be passed on to consumers to some extent.
The strategist further elaborated on the complexities of determining how U.S. businesses would adjust their pricing in response to the tariffs. He posed the question of whether businesses would simply add the cost of import duties to the domestic prices of goods or also increase the markup on the domestic value added. Using an example, Englander questioned whether a 10% tariff on an item that costs $10 to import and sells for $20 would result in a final consumer price of $21 or $22.
Additionally, Englander raised concerns about the possibility of second-round effects if the labor market remains stable and consumer demand stays strong, questioning whether this could lead to inflation becoming more deeply rooted in the economy.
