Trump's tariff revenue weakens, low inflation data surpassing expectations boosts US stocks

Tariff policies encounter practical difficulties. On January 6, the U.S. Bureau of Labor Statistics announced the latest CPI at 2.7%, well below Wall Street’s expected 3.1%, breaking the market’s widespread concern that tariffs would push up inflation. More notably, the tariff revenue hoped for by the Trump administration is weakening month by month. This set of comparative data reveals a core issue: the actual effect of tariff policies has significantly deviated from expectations.

Why Tariffs Have Not Driven Up Inflation

This result may seem unexpected, but there is a clear logic behind it. The latest research from the San Francisco Fed indicates that historical experience shows tariffs have not triggered a large-scale inflation surge, due to the market’s self-adjustment mechanisms.

Importers’ Hedging Strategies

• Shifting supply chains to avoid tariffs
• Negotiating exemptions with various countries
• Actual tax rates being significantly diluted

According to data, the current average effective tariff rate in the U.S. is about 12%, far below the nominal rate. This means that although policies claim to raise tariffs, the actual implementation is greatly weakened.

Inflation Impact Has Been Essentially Absorbed

Institutional estimates show that tariffs have contributed approximately 0.9 percentage points to personal consumption expenditure (PCE) inflation, of which 0.4 percentage points have already been absorbed by the market earlier. In other words, the main inflation shocks may have already passed, and core PCE is expected to approach the 2% target within the year. This explains why the January CPI data was actually below expectations.

The Practical Dilemma of Tariff Revenue

A more specific issue appears on the revenue side. Pantheon Macroeconomics reports that U.S. tariff revenue has begun to decline:

A decline of $4 billion over three months, a drop of 11.7%. This trend poses a direct impact on the U.S. fiscal situation.

The Gap Between Fiscal Expectations and Reality

Former U.S. Treasury Secretary Mnuchin predicted that tariffs could generate between $500 billion and nearly $1 trillion in revenue, but independent estimates show that tariff revenue in 2025 may only be between $261 billion and $288 billion. The difference exceeds threefold.

This shortfall in expected revenue directly weakens the U.S. government’s fiscal space. The “Trump Account” and universal cash subsidy plans proposed by Trump face sustainability challenges. Currently, the U.S. cumulative deficit for fiscal year 2026 has reached $439 billion, with total national debt exceeding $38.5 trillion. The decline in tariff revenue is undoubtedly making the situation worse.

Market Sentiment Shifts

The emergence of low inflation data has changed market expectations. For cryptocurrencies and risk assets, this is a positive signal:

• Eased inflation pressures suggest the Fed may not need to tighten excessively
• Low inflation environment preserves real purchasing power, benefiting risk asset allocation
• Boosting U.S. stock market sentiment often drives the entire risk asset category

Summary

The core logic of this data release is clear: the effect of tariff policies in driving up inflation is far below expectations, mainly because the market has mitigated policy shocks through supply chain adjustments and avoidance strategies. Meanwhile, the weakening of tariff revenue exposes another issue—fiscal gains falling short of expectations. The occurrence of low inflation has indeed boosted market sentiment, but behind this lies the limited effectiveness of the Trump administration’s tariff policies. For investors focused on macroeconomics and asset allocation, this set of data signals an important turning point: market concerns about inflation are easing, but the sustainability of policies remains to be observed.