Tariff income is significantly underperforming initial White House projections, yielding approximately $100 billion less than anticipated, as revealed by a recent assessment from Pantheon Macroeconomics. Treasury Secretary Scott Bessent predicted in August that tariffs would generate “well over half a trillion, maybe toward a trillion-dollar number,”, but figures gathered up to November 25th suggest that customs and excise duties are annualizing at just $400 billion.
TL;DR
- Tariff income is $100 billion less than White House projections, annualizing at $400 billion.
- Lower average effective tariff rate due to reduced China imports and increased USMCA compliance.
- Rise in untaxed AI hardware imports also diminishes overall tariff revenue.
- Tariffs are functioning as a tax on U.S. companies and consumers, increasing prices.
This deficit arises because the average effective tariff rate (AETR) is considerably lower than projected. The AETR is presently assessed at a mere 12%, a substantial decrease from the approximately 20% that was broadly foreseen earlier this spring. Even the Congressional Budget Office (CBO) experienced surprise, revising its projection for the pre-substitution tariff rate downward to 16.5% from 20.5% during the previous month. Samuel Tombs, chief U.S. Economist at Pantheon Macro, along with senior U.S. Economist Oliver Allen, pinpointed three principal reasons for the AETR's lower-than-anticipated level, beginning with The United States' interactions with China. To put it plainly, the decline in commercial dealings with China is not being compensated by new tariff income.
1. China's imports experience a sharp decline and are being redirected
A primary contributor is the significant reduction in shipments from China, which have fallen by 30%. China's portion of all U.S. Imports has decreased to merely 9%, a drop from 13% in 2024. Businesses are evidently redirecting commerce via Vietnam, Pantheon discovered. Shipments from Vietnam have escalated to represent 6% of all incoming goods, an increase from 4% the previous year, propelled by “huge increases in imports of game consoles, TVs, and clothes.” Each of these carries a 20% duty, considerably less than the almost 50% levy imposed on Chinese goods.
2. The United States-Mexico-Canada Agreement's adherence surpasses projections
The second outcome stems from a policy enacted by Trump during his initial presidency: the much-anticipated overhaul of NAFTA, now referred to as the United States-Mexico-Canada Agreement (USMCA). It appears that the percentage of items entering the U.S. Without tariffs from Canada and Mexico under the USMCA is considerably greater than early projections indicated.
The White House estimated in March indicated that 38% of Canadian imports and 50% of Mexican imports fell under the USMCA. Following Trump’s surprise tariff hikes on each nation this year, which are open to downward negotiation, items not adhering to USMCA regulations are presently subject to a 35% duty from Canada and a 25% duty from Mexico, excluding a 10% levy on energy resources originating from Canada.
This indicates that the actual AETRs for those nations ought to have been around 18% and 13%, correspondingly. Nevertheless, the figures reveal that realized AETRs during August were merely 5% in both Canada and Mexico. This points to a significant rise in the proportion of imports entering under the USMCA agreement.
Pantheon Macro indicates that companies in Canada and Mexico have probably grown much more diligent in supplying data to U.S. Customs to verify the source of their product components, a step they had minimal motivation to undertake under the former tariff framework. To put it differently, Canada and Mexico are ensuring they receive the USMCA tariff waiver, and this is disrupting the White House's projections, which were founded on prior, less compliant international commerce.
3. Rise in AI hardware not subject to tariffs
A fourth element diminishing the total AETR is a sharp rise in untaxed goods entering the country this year. Notably, shipments of “automatic data processing machines”—primarily comprising personal computers and sophisticated chips for artificial intelligence applications—have dramatically increased. These incoming goods now represent 9% of all incoming shipments, a substantial jump from 4% in 2024. This influx of advanced technology imports actually masked a 10% decline in other product imports compared to the previous year during August.
This appears to be a one-off, or one-year kind of exception. “We think U.S. Firms are depleting inventory of imported goods for now,” Pantheon wrote, adding the likelihood of the Supreme Court striking down roughly 60% of the current tariff regime under the IEEPA law “is temporarily incentivizing businesses to postpone placing new orders for imports.”
Should the existing tariffs persist, the one-year duration of this stock reduction implies that imports subject to tariffs are expected to rebound in the subsequent year. Pantheon projects these imports to reach $36 billion monthly, with the AETR increasing to 13%. “Even so, tariff revenues still would be much lower than the White House envisaged when it announced the rates.”
However, the $400 billion yearly figure surpasses even some earlier estimates that Torsten Sløk, chief economist at Apollo Global Management, had labeled as “very significant”. Sløk, a prominent figure on Wall Street, stated in September that even $350 billion in tariff revenue constituted a substantial portion of the U.S. Budget. Yet, each decrease in tariffs is increasingly negating deficit reduction, as the CBO slashing its estimates recently disclosed approximately $1 trillion in savings that have vanished due to Trump's lowering of duties on goods from other nations.
In the meantime, the tariffs that remain are functioning more and more like a tax, since other countries and international companies don’t pay for them—U.S. Companies and consumers do. LendingTree calculated tariffs will cost American shoppers some $29 billion this holiday season, while investment bank UBS states it plainly: “The tariffs are a big tax increase.” The most immediate impact of the trade regime is felt in rising prices, which are “keeping things elevated.” Estimating a weighted-average tariff rate of 13.6%, UBS calculated that tariffs will add 0.8 percentage points to core PCE inflation in 2026, erasing roughly a year’s worth of disinflation progress.