Has America hit “peak tariff”? 

For the past year Donald Trump’s tariff mania has shaken the world economy. Firms and governments have been forced to contend with an ever-shifting patchwork of levies, deals and exemptions. Threats have been made and withdrawn, most recently against various European countries over Greenland and against South Korea over its supposed failure to implement a trade deal with America. A looming Supreme Court decision may force yet another pivot, if the justices rule against Mr Trump’s use of emergency economic powers to impose a tax, which is ostensibly the job of Congress.

All the drama notwithstanding, the tariffs are beginning to look less volatile in another way. Having surged after Mr Trump launched his all-out trade world war in April, the money they earn for the government is no longer rising. Before Mr Trump’s second term, America was collecting about $8bn-9bn a month in tariffs plus associated taxes and fees. By October it was snatching a bit over $30bn, equivalent to about 1.2% of GDP if sustained for a year (see chart 1). Takings have levelled off since. January’s haul was the lowest since September (after seasonal adjustments).

One way to pull in more money would be to ratchet up tariff rates. But that works only up to a point: the 145% levy on Chinese imports Mr Trump slapped on at one time in April amounted to a trade embargo, and no imports means nothing to tariff. Even less prohibitive levies come at a cost to America’s economy. Yale University’s Budget Lab estimates that 15% of the money earned from Mr Trump’s duties is cancelled out by lower tax revenues elsewhere owing to slower GDP growth.

Mr Trump has recognised this, at least implicitly, by regularly backtracking on his threats. He did so in May with China and last month with Europe, after his Greenlandic ambitions rattled markets. With less fanfare, the administration has gradually trimmed hair-raising and headline-grabbing tariffs, as foreign diplomats work overtime to secure “trade deals” and American companies lobby for exemptions.

Another reason to expect tariff revenues have peaked is the Supreme Court. The bulk of Mr Trump’s tariffs were, unusually, put in place using the International Emergency Economic Powers Act (IEEPA), which covers trade restrictions in cases of national emergency. (The president has argued, dubiously, that trade deficits constitute such a crisis.) In November his lawyers got grilled by the justices during oral arguments. Betting markets now put the probability the court will rule this use of the IEEPA constitutional at just 30% or so (see chart 2). Although Mr Trump has other legal authorities to wage his tariff war, none is as sweeping. A ruling against his levies would no doubt create a clunkier tariff system—and a less lucrative one.

The behaviour of businesses, too, implies a lower tariff take from now on. Expecting higher levies, many firms stocked up madly in early 2025. That let them dial down imports for a while after the tariffs hit. That strategy has run its course: surveys suggest firms’ inventories are falling (see chart 3). Some importers have thus been pleading with foreign suppliers to lower their prices, which lowers the taxable value of the goods they bring in.

Others are looking for other ways to avoid the levies. Less scrupulous businesses may try to obscure the source, value or category of imported goods. In December an executive at a plastics company pleaded guilty to falsifying country-of-origin declarations to skirt tariffs on Chinese goods in 2021. Although the Department of Justice is beefing up tariff-policing capabilities, it is unlikely to catch all rule-breakers.

Mr Trump wants businesses to start making things in America. Even if this happened at scale, a near-impossibility for as long as his erratic tariff policy deters firms from making investment decisions, it would mean America needs less stuff from abroad—and generates less in tariffs.

Companies’ most obvious response is to start passing more of the costs of tariffs on to customers. Goldman Sachs, a bank, reckons that about 60% of such costs is now being passed along. This may lead buyers to favour less-tariffed goods. The more they shun high-tariff items, the fewer such items sellers will import. Once again, that means slimmer pickings for customs agents. After a busy few months, they can look forward to a well-deserved rest. ■