Tale of the Tariffs: Rebates for American Citizens

Plus, a flurry of trade deals.

The rebates are coming! The rebates are coming! While tariffs have yet to rekindle the inflation flame – yet! – an idea to extend government transfer payments to US citizens could reignite inflationary pressures. President Donald Trump revealed to reporters that he is thinking about a tariff-funded check for some Americans. But have we not learned from the coronavirus pandemic that stimulus funds fuel price hikes?

Trumponomics 2.0: Tariff Rebates

President Trump, talking to reporters before heading to Scotland for the weekend, suggested that his administration is considering rebates for a portion of Americans. This idea, according to Trump, would be funded by record tariff revenues Washington has observed in recent months.

“We have so much money coming in, we’re thinking about a little rebate. The big thing we want to do is pay down debt. But we’re thinking about rebates,” Trump said on July 25. “We’re thinking about a rebate because we have so much money coming in from tariffs that a little rebate for people of a certain income level might be very nice.”

The United States has been collecting record amounts of revenue from the president’s sweeping global tariffs. According to the Treasury Department’s July 23 Daily Treasury Statement, the US government has garnered $27 billion from “customs and certain excise taxes” so far this month. Fiscal year-to-date, which runs from October 1 to September 30, tariff income has reached nearly $150 billion.

While these dollar figures have never been observed before, the government continues to run a $2 trillion annual deficit, suffers from a $36 trillion national debt, and makes $1 trillion in interest payments. Additionally, even if tariff revenues reach the estimated $300 billion mark later this year, they still account for a small share of the overall taxes paid to Uncle Sam.

How could the administration approve this idea? The likelihood is that it was something floating around in President Trump’s head and will not come to fruition. Remember, he suggested earlier this year to issue dividend checks funded from 20% of the Department of Government Efficiency’s (DOGE) savings. If he does follow through on this scheme, the economic literature – modern and old – that the public can expect inflation comparable to what occurred during the pandemic.

Fast and Furious

With about a week until the August 1 deadline, the president has reached several trade deals with US trading partners. Heading into his overseas visit, Trump confirmed trade agreements with Indonesia, the Philippines, and Japan. This is in addition to the Vietnamese and British bilateral pacts announced since Liberation Day on April 2.

Like the previous deals, foreign goods entering the United States will be subject to sizable tariffs. Conversely, US products exported to these foreign markets will not incur tariff rates. However, the US-Japan agreement could potentially be a significant development for the Trumponomics 2.0 economic agenda.

According to the White House, Japanese exports would be slapped with a 15% reciprocal tariff rate. Tokyo will also expand its purchases of rice by 75%, acquire various agricultural goods and energy items, and buy 100 Boeing aircraft. US items shipped to the world’s fourth-largest economy would not face any tariffs.

A major component of the arrangement, however, is that Japan will invest $550 billion in the US economy, with the United States taking 90% of the profits. Furthermore, administration officials can direct the funds to any purpose they wish, including semiconductor manufacturing, pharmaceutical production, or energy infrastructure.

Here is what Commerce Secretary Howard Lutnick told CNBC’s “Squawk on the Street” in a July 24 interview:

“This is literally the Japanese government itself saying to Donald Trump, we will provide Donald Trump and the American people $550 billion on projects you choose. And we will give you 90% of the profits, America. So basically, Donald Trump can pick the projects. And we are working the details out now. We’re doing the documentation right now. But here’s an example. Donald Trump says, look, we don’t make generic antibiotics in America. We don’t make antibiotics. So let’s go build those factories. Let’s go invest $15 billion and let’s take care of generic antibiotics.”

Perhaps Tokyo offered the money to buy down a lower tariff rate, considering that Japanese automakers control 30% of the US car market. As a result of the deal, Japan will enjoy a competitive advantage since Trump’s automotive tariffs are 25%. At the same time, the Japanese government’s commitment adds to the multi-trillion-dollar pile of domestic and foreign investment in the US economy.

200 Letters Coming

Does President Trump have an autopen handy? Ahead of the August 1 deadline, Trump stated that he plans to send 200 letters to other countries, informing them of their tariff rates, which he says will range from 10% to 15%. Still, he noted that most of the agreements have been finished, so everyone will need to stay tuned to Truth Social over the coming days for the latest letters, terms, and tariffs.