Trump Trade War: Tariffs Boost Revenue but Pressure Corporate America

The US government collected a record $27.7 billion in tariffs in July. If this pace continues, annual tariff revenue could reach $308 billion in 2025. This growth appears to be a win for the Treasury. However, it may only reduce the budget deficit for FY 2026.

The situation is not that simple. Tariffs function as a hidden tax. They increase the cost of imports, which either squeezes corporate earnings or increases consumer prices. In sectors where alternatives are limited, such as rare metals, chemicals, or semiconductor equipment, buyers have little choice but to pay higher prices. When tariffs apply equally to all importers, the cost burden shifts to the domestic supply chain.

Moreover, the corporations with thin margins struggle to pass these costs on to customers. Auto manufacturers, airlines, and food companies face this pressure daily. The result is weaker earnings and pressure on profitability. However, some stock prices remain elevated due to broader market optimism.

A Shrinking Trade Deficit Masks Supply Chain Shifts

America’s trade deficit with China fell to just $9.5 billion in June, the lowest since 2004. Moreover, the overall goods and services deficit also dropped to $60.2 billion, matching 2023 levels. In theory, this marks progress toward a more balanced trade profile.

However, this decline is not necessarily a sign of economic strength. Most of the drop stems from a surge in early 2025 imports ahead of new tariffs. Meanwhile, surpluses for Taiwan and Vietnam hit record highs. This suggests trans-shipping from China is distorting trade flows.

On the other hand, the trade with Germany and Canada also dropped. While this reduces dependency, it disrupts existing supply chains. The shifting trade routes may reduce the deficit, but may not always benefit domestic producers.

Employment and Inflation Send Warning Signals

The US services sector is losing steam. The ISM Services PMI dropped to 50.1% in July. Moreover, the ISM non-manufacturing employment dropped to 46.4%, signalling job losses ahead.

Manufacturing jobs are already struggling. Meanwhile, the service sector, which is the primary source of U.S. jobs, is also weakening. As a result, recent job data shows the labour market is slowing down.

Meanwhile, price pressures are increasing. The ISM Prices Index jumped to 69.9%, as shown in the chart below. Tariffs are driving inflation, and those costs are spreading through the economy. If wage growth fails to keep pace, real incomes will decline, weakening consumer demand.

Corporate Earnings Under Pressure from Rising Tariff Costs

Corporate earnings have come under pressure as tariffs begin to weigh heavily on operating costs. In recent weeks, major US companies either lowered their forward guidance or declined to provide any outlook. The impact is most visible in industries directly exposed to global supply chains. These industries include automakers, airlines, and consumer goods companies.

General Motors Company (GM) reported a $1.1 billion hit from tariffs in just one quarter. On the other hand, Ford Motor Company (F) expects the total impact for the year to reach $3 billion, while Stellantis N.V. (STLA) faces $1.7 billion in additional expenses. These reports signal a broader shift as US companies adjust to a higher-cost environment.

The chart below shows that General Motors and Stellantis have moved little in 2025, while Ford has surged with a 173.7% price gain on a strong strategy and demand in electrified vehicles.

The airline industry is also under pressure. Delta Air Lines, Inc. (DAL) withdrew its full-year forecast, citing soft travel demand. Moreover, the shares of United Airlines (UAL) and American Airlines (AAL) show intense volatility due to economic uncertainty and rising operating costs. Consumer-focused companies, including Yum Brands Inc. (YUM), also missed earnings expectations as higher input costs reduced their profit margins.

The chart below shows that the airline industry has continued to consolidate since 2025, with no significant growth in stock prices.

If the trend of weaker earnings and cautious guidance continues, it could put renewed pressure on stock prices. With tariffs remaining in place, markets may continue to face significant headwinds.

Despite headwinds in specific sectors, the S&P 500 (SPX) has moved higher, driven by substantial gains in large-cap stocks. The index’s growth is closely tied to themes like artificial intelligence, cloud computing, and digital infrastructure, which continue to attract significant investor capital. The chart below highlights the bullish potential in the S&P 500, supported by a strong upward price structure.

Bottom Line: Trump’s Tariffs and Their Lasting Economic Impact

Tariffs are boosting government revenue but creating hidden costs for businesses and consumers. The trade deficit is shrinking, yet supply chains remain under pressure. Moreover, the employment is cooling, while the inflation is rising. Corporate America faces weaker earnings, even as the S&P 500 pushes to new highs on tech optimism. The economy now walks a fine line between fiscal gains and broader risks, leaving investors to weigh opportunity against uncertainty.