Trump’s income from trade tariffs is already dropping, and Wall Street seems quite pleased with this development

US Inflation Remains Lower Than Expected Despite Tariffs

Recently, the US Bureau of Labor Statistics announced that consumer price inflation stood at just 2.7%, surprising many analysts who had forecasted a rate of 3.1% according to Wall Street consensus.

Since President Trump introduced the so-called Liberation Day tariffs last April, economists have anticipated that these increased import costs would drive up inflation. For example, by November 2025, the average tariff on Chinese goods reached 57.6%, as reported by the Peterson Institute for International Economics.

One might expect these tariffs to push consumer prices higher. However, two recent studies suggest otherwise. Research from the Federal Reserve Bank of San Francisco and Northwestern University found that tariffs have not historically led to significant inflation spikes. This is largely because importers often find ways to offset the tariffs, or governments negotiate exemptions and compromises that lower the effective rates.

While both studies indicate that tariffs negatively impact economic growth and employment, their influence on inflation has been milder than anticipated.

According to a recent note from Pantheon Macroeconomics, US government income from these tariffs is already declining. This trend suggests that the inflationary impact of tariffs will diminish over time. Pantheon’s data shows tariff revenues peaked at $34.2 billion in October, then dropped to $32.9 billion in November and $30.2 billion in December.

Analysts Samuel Tombs and Oliver Allen commented, “Although the latest trade data only covers up to September, reasonable estimates for recent months put the average effective tariff rate at about 12%—still much lower than figures cited by independent fiscal watchdogs.”

They project that the tariffs will add just 0.9 percentage points to Personal Consumption Expenditures (PCE) inflation, with businesses absorbing 0.3 points of that. “By September, our calculations indicate that 0.4 points of this increase had already been reflected, so most of the tariff impact is now behind us. As a result, core PCE inflation is likely to approach the 2% target later this year.”

Tariffs’ Limited Revenue and Debt Implications

The limited revenue generated by tariffs also affects the US government’s ability to address its debt. As Pantheon notes, “Revenues are falling well short of the White House’s projections; Treasury Secretary Bessent had predicted in August that tariffs would generate ‘well over half a trillion, maybe close to a trillion dollars.’”

Independent estimates show actual tariff collections have been much lower. The Bipartisan Policy Center estimates $288 billion was raised in 2025, while Politico puts the figure at $261 billion. The St. Louis Fed reports $331 billion collected from all production, import, and customs taxes in Q3 2025, with growth in collections slowing compared to previous periods.

According to the Bipartisan Policy Center, the federal deficit for fiscal year 2026 (which began in October) has already reached $439 billion, while the national debt now exceeds $38.5 trillion.

President Trump has already allocated some of the tariff revenue to provide a $1,776 “warrior dividend” to 1.45 million US military members ahead of the Christmas holidays.

The drop in tariff income also raises questions about the feasibility of the proposed $1,000 “Trump accounts” for children and the unfulfilled idea of distributing a $2,000 bonus to every citizen from tariff proceeds.

Meanwhile, Treasury yields—which reflect the return investors require for lending to the US government—have risen over the past three months. The 5-year Treasury yield increased from 3.55% to 3.727%, and the 10-year yield climbed from 3.95% to 4.187%.

Market Response and Current Snapshot

Despite these fiscal challenges, investors seem encouraged by the subdued inflation outlook and reduced risk of future price surges. The S&P 500 ended yesterday up 0.64%, just shy of its record high. Futures were steady this morning, while European and Asian markets opened higher. Bitcoin continues to trade above $93,000.

Here’s a look at the markets before the New York opening bell:

• S&P 500 futures: Flat this morning; previous session closed up 0.64%.
• STOXX Europe 600: Unchanged in early trading.
• FTSE 100 (UK): Rose 0.59% at the open.
• Nikkei 225 (Japan): Gained 1.32%.
• CSI 300 (China): Increased by 1.55%.
• KOSPI (South Korea): Up 1.52%.
• NIFTY 50 (India): Down 0.28%.
• Bitcoin: Rose to $93,500.

This article was originally published on Fortune.com.