For President Donald Trump, tariffs, not just the idea but also the emotional response, make it “the most beautiful word” in the English language. For him, the beauty of tariffs lie in their supposed ability to solve the country’s biggest financial problems, serving as both a replacement for income tax and a fix to the country’s towering federal deficit. Yet that cure may be more of an illusion than a solution, as experts say tariffs are a faulty revenue-making device.
“As a revenue tool, they’re very weak,” Kyle Pomerleau, an international tax policy expert and a senior fellow at the American Enterprise Institute, told Fortune. “They do raise some revenue, but just not enough to really move the needle one way or the other.”
Trump has touted tariffs as a viable tool for tackling the national debt. But with the debt on track to hit a record $39 trillion, the revenue coming in from tariffs today are barely scratching the surface. Treasury Secretary Scott Bessent said the Trump Administration ultimately aims to fully replace the full revenue lost from the International Emergency Economic Powers Act (IEEPA) tariffs that the Supreme Court struck down last month. However, both the new 10% tariffs introduced under Section 122 (which allows the president to impose tariffs on a short-term basis) and the previous IEEPA levies fall short of making a meaningful dent in the federal deficit.
President Trump said last year tariffs “are helping to slash the deficit this year by more than 25%.” But with a tariff strategy that failed to tackle the deficit then, and is more hamstrung now, that’s far from the reality.
Tariffs are a weak tool for addressing budget shortfalls
A new analysis from the Committee for a Responsible Federal Budget (CRFB) finds the Supreme Court’s 6-3 ruling against the president’s tariffs enacted under IEEPAwill reduce federal revenue by $1.7 trillion through fiscal year 2036, assuming the government refunds the tariffs (of which the Supreme Court didn’t address). But they were never going to even come remotely close to plugging the sizable hole in the country’s fast-growing and record-breaking federal deficit.
“There’s really nothing behind this idea that tariffs are going to have a significant or meaningful effect on the budget outlook,” Pomerleau said.
Pomerleau estimates the IEEPA tariffs would only have a marginal impact, reducing the primary deficit by half a percentage point of GDP—a number the Congressional Budget Office estimates to be around 2.6% of GDP this year. He said the new tariffs put in place are sure to have an even smaller impact than that meager half a percentage point.
The nonpartisan fiscal watchdog punched the numbers and found that even with the newly enacted 10% Section 122 tariffs, the national debt is set to rise to 125% of GDP by 2036 as opposed to the estimated 120% with the IEEPA tariffs. The deficit will rise to 7.1% with the 10% tariff as opposed to 6.7% of GDP with the IEEPA levies in place.
The report predicts the current enacted 10% tariff would raise just $925 billion in revenue over the next 10 years. And a 15% tariff, which Bessent said the Trump Administration would implement this week, would raise $1.3 trillion by 2036, still $400 billion short of matching the estimated revenue from the IEEPA tariffs. But the 10%, Section 122 tariffs are temporary, and are only expected to raise about $35 billion over the next five months, as opposed to an estimated $65 billion raised under the IEEPA tariffs during the same time frame.
What’s the solution?
Pomerleau notes that whatever the outcome is on the tariffs, the outlook for the federal budget remains dim. The CRFB has warned that the U.S. is on track to enter a “debt spiral” where the average interest rate on all federal debt is projected to exceed the rate of nominal economic growth. “Regardless of what Trump does on tariffs, the budget outlook doesn’t look great,” Pomerleau said.
While the CRFB notes Trump’s tariffs were “generating meaningful revenue amid a bleak fiscal output,” they caution that “relying on uncertain legal authorities or temporary measures can undermine the stability of enacted tariffs.”
Instead, the watchdog encouraged “policymakers to enact revenue or offsets sufficient to fully replace lost IEEPA revenue, and to codify these changes – whether from tariffs or other sources–into law.”
