When the next recession hits, whoever is president will face intense pressure to cut tariffs, so don’t rely on them for revenue, top economist says
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“There’s going to be a strong incentive on that president’s part to say, ‘Okay, I’m going to cut the taxes.’”
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August 11, 2025
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Fortune
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Economy·Tariffs and tradeWhen the next recession hits, whoever is president will face intense pressure to cut tariffs, so don’t rely on them for revenue, top economist saysBy Jason MaBy Jason MaWeekend EditorJason MaWeekend EditorJason Ma is the weekend editor at Fortune, where he covers , the economy, finance, and housing.SEE FULL BIO President Donald Trump holds a recical tariffs poster during a tariff announcement in the Rose Garden of the White House on April 2.Kent Nishimura—Bloomberg via Getty ImagesPresident Donald Trump’s tariffs are generating revenue for the federal government at an annual rate of $300 billion
While that sounds a mising source of funding, tariffs went into effect with a stroke of a pen, and they can go away with one, too
And in the next recession, there will be calls for tariff relief to help consumers, Moody’s Analytics chief economist Mark Zandi said
The federal government is on pace to reap a significant amount of revenue from President Donald Trump’s tariffs, but they may not be a reliable source of funding, especially in a recession, according to Moody’s Analytics chief economist Mark Zandi
The average effective tariff rate is now 20.2%, the highest since 1911, according to Yale’s Budget Lab
Based on the revenue tariffs are generating so far, they should bring in $300 billion annually
Though that’s not nearly enough to eliminate the federal budget deficit, which is expected to widen to nearly $2 trillion this year, it’s still a meaningful amount
So why not rely on them as a long-term revenue source? In an episode last Wednesday of the Facing the Future podcast from the Concord Coalition, a nonpartisan group focused on reducing the national debt, Moody’s Analytics chief economist Mark Zandi pointed out tariffs were imposed via executive order and can be changed in an instant
In addition, the so-called recical tariffs are facing court challenges on the argument they’re not covered under the International Emergency Economic Powers Act
As a result, Zandi cautioned against making other tax and spending decisions based on the assumption those tariffs will remain in place
And if the economy goes south, then all bets are off. “I suspect that the next time the economy gets into recession—and it will, maybe not this go around, but at some point it will—whoever’s president is going to be under significant pressure to cut those tariffs because they can do it under executive order
They don’t need to go to Congress to get a piece of legislation,” he added
A downturn may even come sooner rather than later
Earlier this month, Zandi warned the economy is on the brink of a recession
On Sunday, he ed that up, saying while the U.S. isn’t in a recession now, more than half of the roughly 400 industries tracked in government data are already shedding workers, a phenomenon that’s accompanied previous downturns
Meanwhile, most of the cost of tariffs are being passed on to consumers, meaning those import taxes are effectively sales taxes
Goldman Sachs calculated that around 67% of the tariff costs are being passed on to consumers. “There’s going to be a strong incentive on that president’s part to say, ‘OK, I’m going to cut the taxes,'” Zandi told the Concord Coalition’s Carolyn Bourdeaux and Robert Bixby
While Trump has floated the idea of using the tariff revenue to vide some kind of dividend or rebate to Americans, the White House insists consumers are not shouldering tariff costs and that foreign exports are
Either way, Zandi says he thinks it’s highly unly that tariffs will generate $300 billion a year over the next decade and warned against counting on a windfall that. “In fact, if you did do that, we’re setting ourselves up for an even more dire, darker fiscal situation down the road because I just don’t think those tariffs are going to be around 10 years from now,” he added
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