Mark Zandi, chief economist at Moody's Analytics, said that while the US government is expected to generate significant revenue from Trump's tariffs, they may not be a reliable source of funds, especially during a recession.
Data from the Yale Budget Lab shows that the average effective tariff rate in the US is currently 20.2%, the highest level since 1911. Based on the revenue generated by tariffs so far, they should bring in about $300 billion annually.
This is far from enough to eliminate the US government's budget deficit, which is expected to widen to nearly $2 trillion this year.
Zandi noted in a podcast last Wednesday (August 6) that tariffs are imposed by executive order and can be changed in an instant, making them a poor long-term source of revenue.
Furthermore, the Trump administration's so-called "reciprocal" tariffs are facing court challenges on the grounds that they are not covered by the International Emergency Economic Powers Act.
Therefore, Zandi warned against making other tax and spending decisions based on the assumption that these tariffs will remain in place. If the economy tanks, all bets are off.
He added, "I suspect the next time the economy goes into a recession—maybe not this time, but it will happen at some point—whoever is president will be under tremendous pressure to cut tariffs because they can do so by executive order. They don't have to go to Congress to get legislation."
A recession could even come sooner rather than later. Earlier this month, Zandi warned that the U.S. economy is on the brink of a recession.
On Sunday (August 10), he further stated that while the U.S. is not in a recession yet, more than half of the roughly 400 industries tracked by government data are already cutting jobs, a phenomenon seen in previous recessions.
Meanwhile, much of the cost of tariffs is being passed on to consumers, meaning these import taxes are effectively sales taxes. Goldman Sachs estimates that about 67% of the tariff costs are being passed on to consumers.
"The president would have a strong incentive to say, 'Okay, I'm going to cut taxes,'" Zandi said in a podcast last Wednesday (August 6).
While Trump has floated the idea of using tariff revenue to provide some kind of dividend or rebate to Americans, the White House insists it's not consumers but foreign exporters who bear the cost of tariffs.
Either way, Zandi said he sees little chance that tariffs will generate $300 billion annually over the next decade and warned against counting on such a windfall.
"In fact, if you do that, we're going to be in a much scarier, darker fiscal situation because I don't think these tariffs will be in place 10 years from now," he said.
