Fiscal Outcomes of US "Liberation Day" 1: "Where is the money, Zin?"

He explained his decision by stating that more than 75 countries had expressed their readiness to start negotiations with the US on revising trade conditions. Subsequently, the pause was extended once again—until August 1, and on July 31, the administration published updated (generally reduced) rates of the "reciprocal tariffs," which came into force on August 7.

A particular foreign trade drama unfolded with China, the main offender of the States. Trump began imposing increased tariffs on Chinese exports to the US back in 2018 during his first term to counter the structural cost advantages that Beijing's industrial policy (cost financing, subsidized energy and land, forced technology transfer, and currency management) gave to Chinese exporters. This policy actually worked. The bilateral US trade deficit with China has decreased by about 50% since 2018, reaching $221 billion in 2025.

The tariff war escalated sharply on April 2, 2025, when the second Trump administration introduced reciprocal tariffs, which initially raised rates above 100%. However, the Geneva pause in May 2025 lowered the aggregate rate to about 50% and below, but average tariffs on Chinese imports during 2025-26 remained at historically high levels of around 47%, more than double the stable benchmark of 20-21% achieved under the Biden administration.

Donald Trump promised America a massive tariff boost to the budget to compensate for his business tax cuts. What are the results of the tariff taxation on Chinese imports? A year after the most aggressive tariff escalation since 2018, the US has collected only about 60% of the projected customs revenues. In other words, while overall US tariffs on Chinese imports averaged 62% over a thirteen-month period (April 2025 – May 2026 inclusive), the Treasury collected customs revenues at a rate of 38%. Therefore, the federal budget during this period did not see $70 billion of additional revenues in its accounts from the total volume of taxable Chinese exports to the US amounting to $277 billion.

"Where is the money, Zin?!" Let's look for the answer in the next article.