Weekly Economic Trends and Indicators

June 17, 2025

weekly trends and indicators quad cities

Last week, we reviewed the effects of tariffs in the recent past, particularly the 2018 steel and aluminum tariffs. Studies have found a small but measurable negative effect on employment and GDP from those tariffs, and the steel and aluminum imposed this year would likely have similar results. This week, we look at two other aspects of tariffs that have entered the discussion: revenue for the government and retaliation from other countries.

The additional revenue from the tariffs imposed this year is already quite significant when compared to the past few years. The chart below shows a year-over-year comparison of tariff revenue (including certain excise taxes collected by the Department of Homeland Security) for the first five full months of this year. We are on a pace to approximately double this revenue stream by the end of the fiscal year.

However, tariff revenue is one of the smallest components of federal tax revenue. As the next chart illustrates, tariff revenue made up only about 1.6% of federal tax revenue in FY24. Individual income tax made up about half of all federal revenue with Social Security and Medicare tax revenue coming in a distant second. At the current rate of tariff revenue, we will probably end the fiscal year with tariffs making up about 4% of federal revenue. Even so, the additional revenue of about $100 billion over last year is just a small fraction (only about 5%) of the projected federal budget deficit for the current fiscal year.

Although the revenue effect of tariffs may be small compared to the size of the economy, there is also a strategic effect of tariffs that should be considered. If a tariff causes consumers to drastically reduce their purchase of the imported good, it could force the exporter in the foreign country to cut the price of the good in order to attract buyers. Effectively the tariff bends the prices in favor of the importing country.

While this may sound appealing, consider the other country’s response. Because tariffs can disadvantage the exporting country in this way, that country may decide to retaliate with their own tariff to either bend the prices for that good back in their favor or to gain a similar advantage for some other good that they import. In either case, the result is that retaliation blunts the strategic advantages of both countries with greater loss of efficiency, less trade, and less revenue collected.

Several countries still have retaliatory tariffs on U.S. goods in response to the 2018 steel and aluminum tariffs (though some have been suspended). Canada and China have imposed additional retaliatory tariffs this year. In the case of Canada, this includes 1,256 goods including both agricultural and manufactured products, many produced in the Midwest.

Next week: National and local labor market update