Trump administration's tariff revenue weakens, low inflation boosts US stock market sentiment

On January 6, the latest data shows that U.S. inflation pressures are significantly lower than market expectations. The U.S. Bureau of Labor Statistics announced the latest CPI at 2.7%, well below Wall Street’s previous consensus forecast of 3.1%, surprising the market. Since Trump announced the “Liberalization Day” tariffs in April last year, the market has generally expected tariffs to push up inflation. However, two recent studies from the San Francisco Fed indicate that historical experience shows tariffs have not triggered large-scale inflation outbreaks, because importers have shifted supply chains, evaded tariffs, and negotiated exemptions with various countries, significantly diluting the actual tariff rates. The studies suggest that tariffs have a more noticeable negative impact on economic growth and employment, but their inflationary push is far lower than expected. A report from Pantheon Macroeconomics shows that U.S. tariff revenues have begun to decline: · October peak: $34.2 billion · November: $32.9 billion · December: $30.2 billion Analysts point out that the current average effective tariff rate in the U.S. is about 12%. Calculations suggest that tariffs impact personal consumption expenditure (PCE) inflation by approximately 0.9 percentage points, of which 0.4 percentage points have already been absorbed by the market, indicating that the main inflation shocks may have passed, and core PCE is expected to approach the 2% target within the year. The lower-than-expected tariff revenues also weaken the U.S. government’s fiscal space. Treasury Secretary Bostick previously estimated 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. Currently, the U.S. cumulative deficit for the 2026 fiscal year has reached $439 billion, with the total national debt exceeding $38.5 trillion. As tariff revenues decline, the sustainability of the “Trump Account” and universal cash subsidy plans proposed by Trump faces challenges.