And the Interesting Thing is on July 12

President Threatens 30% Tariffs on the European Union and Mexico

The president’s “deal making” continues with new tariffs on two of the U.S.’s largest trading partners. In letters submitted yesterday, but only posted on Truth Social this morning, the president threatened new 30% tariffs on the 27-member nation European Union (EU) and Mexico.

Here’s the current state of play:

· As a trading bloc, the EU is America’s largest trading partner. According to the U.S. Trade Representative (USTR), the total value of goods and services trade was $976 billion in 2024 ($370 billion in U.S. exports and $606 billion in imports). The EU had been hoping to conclude a tentative deal to stave off the tariffs, but Trump’s letter dulled optimism for an 11th-hour agreement. He did, however, leave an opening for additional adjustments. “If you wish to open your heretofore closed Trading Market to the United States, and eliminate your Tariff, and Non-Tariff, Policy and Trade Barriers, we will, perhaps, consider an adjustment to this letter,” Trump wrote.

· He went on to say, "understand that the 30% number is far less than what is needed to eliminate the Trade Deficit disparity we have within the EU," adding as he always does, that there “will be no tariff if the EU companies carry out production in the US.” And he has said in the other two-dozen letters, “if for any reason you decide to raise your Tariffs and retaliate, then, whatever the number you choose to raise them by, will be added onto the 30% that we charge." The tariff rates would apply widely, though separate from the president’s sectoral tariffs on steel, aluminum, etc.

· The E.U. has more than $100 billion in retaliatory tariffs on standby that can be implemented quickly. Some of the retaliatory duties target goods made in red states, such as soybeans from House Speaker Mike Johnson’s home state, Louisiana, and bourbon from Kentucky. Additionally, the EU approved retaliatory tariffs of roughly $10 against U.S. aircraft exports that will give Boeing a competitive disadvantage relative to Airbus.

· The president initially announced a 20% tariff on the EU in his “Liberation Day” event in early April before lowering it to 10% as part of a 90-day negotiating pause. But he quickly grew frustrated with the pace of the negotiations (which under normal circumstances take months and years, not 90 days) and threatened a 50% rate, spurring more talks. Earlier in the week, the EU said it was closing in on a framework agreement with the US after European Commission President Ursula von der Leyen spoke with Trump on Sunday.

· Von der Leyen said in a statement that the EU remains “ready to continue working towards an agreement” by the August 1 deadline. “Imposing 30% tariffs on EU exports would disrupt essential transatlantic supply chains, to the detriment of businesses, consumers and patients on both sides of the Atlantic…the EU is willing to continue working on a trade agreement but will take all necessary steps to safeguard EU interests, including the adoption of proportionate countermeasures if required.”

· In his letter to Mexico’s President Claudia Sheinbaum, Trump acknowledged that the country “has been helpful in stemming the flow of undocumented migrants and fentanyl into the United States.” But he said the country has not done enough to stop North America from turning into a “Narco-Trafficking Playground.” So, we can see Stephen Miller played a significant role in drafting the letter.

· He helpfully added that if Mexico “is successful in challenging the Cartels and stopping the flow of Fentanyl,” he would consider adjusting the levies. “These Tariffs may be modified, upward or downward, depending on our relationship with your Country.” The letter is silent on whether the U.S. will preserve a carve-out for goods traded under the USMCA trade deal (which he negotiated and signed during his first term), which have been exempt from the current 25% rate. The administration has previously said it will keep the exemption for Canada.

· According to the USTR, Mexico is America’s single largest trading partner country. With total goods and services trade of approximately $927 billion in 2024 ($378 billion in exports and $549 billion in imports in 2024. Mexico was the second-largest destination for U.S. exports and the top source of U.S. imports. In 2024, over 80% of total Mexican goods exports were to the U.S. and more than 40% of total Mexican goods imports were from the U.S.

· The Budget Lab at Yale, yesterday updated its analysis on the impact of tariffs announced through Friday, including Wednesday’s proposed 35% tariff on Canada, and calculated that American consumers now face an overall average effective tariff rate of 18.7%, the highest since 1933 and at a cost of $2,500 per household. This number will surely increase with announced tariffs this morning on trading partners that accounted for almost $2 trillion in business last year. The International Chamber of Commerce estimates the effective tax rate at more than 20%, which will also grow when the latest tariff announcements are factored in.

And the interesting thing is, the U.S. Treasury Department yesterday reported that tariff collections topped $100 billion for the first time in a fiscal year. In its Monthly Treasury Statement, the Department revealed that the customs duty collections for June reached a record $27 billion, bringing the total for the first nine months of Fiscal Year 2025 to $113.3 billion, nearly double FY 2024’s collections. The president’s tariffs have now become the fourth-largest revenue source for the federal government. Treasury Secretary Scott Bessent said on X that the results show the U.S. "reaping the rewards" from Trump's tariff agenda, “and with no inflation.” That’s disingenuous and will not be sustainable with the tariff hikes the president announced this week…assuming he goes through with them.

The increased tariff collections helped produce a monthly budget surplus, so this is good news, right? No. Projections now estimate annual tariff revenue could hit $300 billion by year-end (though some of this is goal post shifting between fiscal year and calendar year end dates), with the Congressional Budget Office (CBO) forecasting $2.8 trillion in conventional revenue over the next decade. However, dynamic economic effects—like reduced GDP growth and job losses—will lower this figure to less $2.2 trillion by 2035.

Despite the administration’s political rhetoric that attempts to frame tariffs as penalties on foreign nations, tariffs are paid by U.S. importers. These costs are typically passed on to consumers through higher prices. Whether it's copper, autos, or consumer electronics, the result is inflationary pressure that disproportionately affects middle- and lower-income households. Economists at Goldman Sachs predict that companies will pass on 70% of the direct cost of tariffs to consumers through higher prices.

The Budget Lab's analysis shows that tariffs have already raised consumer prices by 1.9% in the short term (equating to a $2,500 average household income loss), increased car prices by 13.5% short-term (adding $5,100 to the cost of an average new car) and driven apparel and footwear prices up by 35% and 37%, respectively. Is it any wonder that 80% of Americans are concerned about the impact of President Trump's tariffs on their personal finances, 34% are delaying major purchases due to rising costs, and 28% are shopping more at discount stores like Dollar General and Dollar Tree?

These figures underscore a critical truth: tariffs are a persistent, not temporary, cost burden. Businesses that rely on imported goods or components face higher input costs for production, and tighter margins. Beyond just passing costs on to their customers, companies will likely have to restructure supply chains (often at great expense) and may shift sourcing to less efficient suppliers or stockpile inventory, which distorts markets for many consumer goods. Tariffs would also harm export-reliant industries—such as agriculture, energy, and manufacturing—thereby lowering demand for American goods overseas.

Tariffs are simply terrible tax policy, and their continued reliance as a revenue source should be concerning to everyone, particularly Congress. You remember them, right?

Oh, and about the June surplus. That’s one bright note in an otherwise bleak report. The June surplus followed a $316 billion deficit in May, and brought the fiscal year-to-date deficit to $1.34 trillion, up 5% from a year ago, with three months left in the current fiscal year that ends on September 30. Persistently high Treasury yields (driven in part by tariffs), again posed a challenge for federal finances. Net interest on the $36 trillion national debt totaled $84 billion in June, down slightly from May but still higher than any other category except for Social Security. Total interest payments are projected at $1.2 trillion for the full fiscal year.

That’s all for today, we’ll see you back here tomorrow!