By: Marta Bengoa
As September's economic numbers crystallize, the United States finds itself at a policy crossroads where complex tariff structures intersect with concerning labor market signals. The U.S. Department of Treasury’s latest figures paint a striking picture: tariff collections reached $31.4 billion in August alone, bringing total 2025 revenues to over $183.6 billion — a staggering 116% increase from the previous year. This represents the largest monthly tariff haul in modern U.S. history, with collections now contributing 2.7% of federal revenues, compared to the historical norm of around 2%.
Yet this revenue bonanza tells only part of the story. The immediate fiscal benefits mask deeper structural costs. The bond market's violent reaction to tariff announcements earlier this year resulted in nearly $5 billion in additional borrowing costs from just three Treasury auctions in April, as 10-year yields surged from 4.01% to 4.51% in just a few days. These secondary fiscal effects compound over time, creating a negative feedback loop where trade policy undermines the very fiscal position it purports to strengthen. This is before adding the fiscal cost of Trump's signature 'One Big Beautiful Bill,' which the Congressional Budget Office estimates will add $3.0 trillion to deficits over the next decade — deficits that will be funded by additional government borrowing.
The complexity and uncertainty of Trump’s tariffs further add to woes. The Trump administration's tariff structure starts with a baseline 10% duty on most imports, with a policy that layers on additional penalties based on trade deficits. Some countries now face rates exceeding 40%. This "reciprocal" approach disproportionately punishes developing economies: Vietnam faces 46% tariffs, Cambodia 49%, while their combined exports to the United States represent over 20% of their respective GDPs. Recent developments have only added to the confusion. The administration struck separate deals with Japan and the European Union, reducing tariffs to 15% for these partners while maintaining punitive rates on Mexico and Canada — ironically, the same USMCA partners Trump negotiated favorable terms with during his first presidency. This creates perverse incentives where Japanese automakers now enjoy better access to U.S. markets than American companies importing from their own North American facilities.
The automotive sector exemplifies this paradox. General Motors faces $1.1 billion in tariff costs, while domestic manufacturers lobby for parity with the new 15% Japanese rate. Meanwhile, companies like Honda are strategically shifting production from Canada to the United States, demonstrating how tariff policy is reshaping supply chains in ways that may not align with broader economic efficiencies. The contradictions become even starker when considering that Stellantis expects $1.7 billion in annual tariff costs, while Volkswagen faces $1.5 billion — all while the administration claims to be protecting American industry.
While tariff revenues soar, labor market data reveal the economic costs these policies impose. The Bureau of Labor Statistics' devastating revision eliminated 911,000 previously reported jobs for the twelve months through March 2025 — the largest downward revision on record. More troubling, recent months show the economy adding just 29,000 jobs monthly from June through August, with manufacturing employment declining by 78,000 over the year. The most concerning signal comes from unemployment insurance claims, which jumped to 263,000 for the week ending September 6 — the highest level since October 2021. Continuing claims have reached 1.94 million, suggesting not just temporary layoffs but sustained unemployment.
Inflation is another concern. August's inflation reading of 2.9% annual growth — accelerating from July's 2.7% — reflects some tariff pass-through effects. Core inflation remains stubbornly at 3.1%, well above the Federal Reserve's 2% target. Research suggests Trump's tariff policies could add 1-1.5 percentage points to consumer prices this year, with food prices rising 1.6% and vehicle prices jumping 8.4% directly attributable to trade duties. This creates an uncomfortable dynamic for Federal Reserve policymakers meeting from September 16th to the 17th. While markets price in an 80% probability of a 25-basis-point rate cut to address labor market weakness, persistent inflation pressures limit their flexibility.
The United States’ central bank finds itself managing the aftermath of fiscal policies that simultaneously constrain monetary options while demanding monetary accommodation. The Federal Reserve cannot indefinitely offset fiscal policy's inflationary pressures while addressing labor market deterioration caused by the same policies. Similarly, tariff revenues cannot compensate for higher borrowing costs and reduced economic efficiency. The current situation demands acknowledgment that trade and monetary policy operate as interconnected systems, not isolated levers that can be pulled independently. A coherent approach would acknowledge that the United States’ economic strength derives from its integration into global supply chains, not isolation from them.
The Federal Reserve’s decision will provide another data point in this complex equation. But ultimately, sustainable economic policy requires recognizing that trade wars, like all wars, extract costs from those least able to bear them while generating revenues that pale beside the broader economic damage they might inflict.
Marta Bengoa is a Non-Resident Fellow at ORF America.