By Christopher Combs
Chief Investment Officer, Silicon Valley Capital Partners
December 2025
Tariffs are usually sold as a trade tool—leverage in a negotiation, a penalty for unfair practices, or a way to push supply chains back home. That framing still matters. But what’s changed—quietly, and in my view materially—is how tariffs are being treated inside Washington and inside boardrooms.
Tariffs are starting to behave like fiscal policy.
Not in theory. In dollars.
According to the Committee for a Responsible Federal Budget (CRFB), the federal government collected $195 billion in customs duties in fiscal year 2025—more than 250% of what it collected in fiscal year 2024. CRFB+1 That is no longer a niche revenue line. It’s large enough to influence budget narratives, policy incentives, and—critically for investors—market expectations.
At the same time, the inflation conversation around tariffs has become oddly inconsistent. Some consumers are convinced tariffs must be driving price increases. Some commentators say tariffs “haven’t mattered” because the CPI didn’t explode on cue. Both views miss the mechanics.
Tariffs can raise prices—and still look deceptively quiet in the aggregate data, at least for a time. They can also land in places inflation indexes don’t easily capture: product variety, quality, and corporate margins.
So this is a second look at tariffs—less as a political slogan and more as a macro variable. Four points matter most right now:
- Expected tariff revenue and the growing temptation to treat it as deficit relief
- Why tariff inflation has been slower and harder to see than the headlines imply
- How the post-COVID price reset gave companies room to absorb costs via margin compression
- Why foreign governments and companies are angry even if the tariff check is written in the U.S.
1) Tariff revenue is now “real money,” and Washington should behave accordingly
Start with the plain fact: tariffs bring in revenue because they are collected as duties at the border. In fiscal year 2024, customs duties were $77 billion, and USAFacts estimates that was about 1.6% of total federal revenue. USAFacts Historically, that’s the right scale: meaningful, but not decisive.
Fiscal 2025 broke that pattern.
CRFB reports customs duties in FY 2025 reached $195 billion, a surge driven by expanded tariff policy. CRFB In their breakdown, collections climbed sharply over the year—CRFB notes monthly duties rising from roughly $7 billion in January to $30 billion by September. CRFB
Now set that next to the deficit.
CRFB’s October 2025 statement—based on Treasury’s Monthly Treasury Statement—puts the FY 2025 deficit at about $1.8 trillion. CRFB+1 On that math, $195 billion is not “solving” the deficit, but it is large enough to fund a meaningful share of it. That changes the politics. And politics, like it or not, changes the persistence of policy.
It’s also why you’re seeing more mainstream budget talk that treats tariff revenue as a financing tool. Reuters reported in August 2025 that the Congressional Budget Office estimated increased tariffs could reduce the U.S. deficit by $4 trillion over the next decade, including lower interest costs from reduced borrowing. Reuters Separately, the Council on Foreign Relations (CFR) noted that, if held at current levels, CBO estimates tariffs could reduce deficits by roughly $3 trillion through 2035, while also warning those estimates don’t account for the effect on the size of the economy. Council on Foreign Relations+1
Those caveats matter. But even caveated numbers influence behavior. Once a revenue stream is large enough to be cited in legislative scoring and deficit talking points, it becomes sticky. Policymakers may not call it a tax. But markets should treat it like one.
There’s another investor-relevant layer here: reliability.
CRFB emphasizes that the fiscal impact is uncertain because of ongoing legal challenges. They note a scenario where, if courts ultimately overturn certain tariffs, roughly $90 billion of the $195 billion collected could require refunds (citing CBP-related estimates), and future monthly revenue could fall by more than half. CRFB
That is not an academic risk. It is the difference between tariffs being a durable “offset” to deficits versus a volatile line item that can reverse.
From a macro perspective, the key point is simple: Washington is increasingly incentivized to defend tariff revenue—especially in a world where deficits are structurally large. CFR frames it bluntly: higher tariff revenue can marginally reduce the amount of bond issuance needed, which can help limit upward pressure on yields—at least at the margin. Council on Foreign Relations
But that’s only half the story, because tariffs don’t just raise revenue. They change prices, supply chains, and profits—the things that drive growth, inflation expectations, and central bank reaction functions.
Which leads to the next question investors keep asking:
If tariffs are so large, why doesn’t inflation look worse?
2) Why haven’t we “seen” tariff inflation yet?
We have—just not always where people expect, and not always at the pace people imagine.
A Federal Reserve “FEDS Notes” analysis in May 2025 found that tariffs implemented in February and March 2025 were associated with a statistically significant increase in consumer goods prices and estimated that, so far, the 2025 tariffs led to a 0.3% increase in core goods PCE prices, contributing about 0.1% to core PCE prices overall. Federal Reserve
That’s not nothing. But it’s also not the kind of number that dominates a national inflation narrative—especially when shelter, services, wages, and energy can swamp the signal.
The same Fed note makes two points that I think investors should keep front-of-mind:
- For the 2018–2019 tariffs, pass-through to consumer goods prices was full and fast—within about two months. Federal Reserve
- For the early-2025 tariffs on China, pass-through was partial in the initial window the authors could observe. Federal Reserve
Why the difference? The Fed analysis points to several plausible drivers, including that China’s share of U.S. goods imports has fallen since the prior episode (they cite a decline from roughly 18% in 2019 to a bit over 13% in 2024), plus implementation timing and exemptions that delayed when tariffs hit real import costs. Federal Reserve
The St. Louis Fed has shown something similar in a different way. In an October 2025 post focused on how tariffs were showing up in the PCE data, their economists report that durable goods prices rose noticeably relative to trend, and they estimate tariffs accounted for roughly 0.4 percentage points of core PCE annualized inflation over June–August 2025, with pass-through still partial. Federal Reserve Bank of St. Louis
So the “we haven’t seen it” line is, at best, incomplete. A better way to put it is:
We haven’t seen tariffs produce a single, clean, headline-grabbing inflation spike across the entire economy.
But we have seen measurable upward pressure—especially in the categories with the most tariff exposure.
There are several reasons tariffs can be inflationary and still look muted in the aggregate numbers:
Tariffs hit categories, not the whole basket
A big tariff increase applied to a subset of goods can move prices meaningfully in those categories and still have a modest effect on overall inflation.
The St. Louis Fed’s retrospective on the 2018–2019 tariffs put it plainly: only a fraction of imported goods were subject to the tariffs, and only a small share of total expenditures is spent on imported goods—so the impact on overall prices may be small even when the tariff increase is substantial. Federal Reserve Bank of St. Louis
Companies don’t always pass through immediately
“Pass-through” is not a law of nature. It’s a business decision, and it happens under uncertainty.
A Minneapolis Fed piece in October 2025, based on high-frequency retail price tracking, described tariff effects as “slow-rolling,” with evidence that retailers were raising prices gradually and absorbing many tariff costs for the time being. Federal Reserve Bank of Minneapolis
That’s exactly what you’d expect if management teams believe tariffs could change, if they worry about demand elasticity, or if competitive conditions punish the first mover who hikes prices.
Tariffs can show up as relative price moves, not a generalized inflation regime
The St. Louis Fed’s 2025 analysis estimates that only about 35% of the model-predicted tariff effect had materialized in the data by August 2025, citing partial pass-through and possible delays in price adjustment. Federal Reserve Bank of St. Louis
That kind of dynamic doesn’t look like “inflation is exploding.” It looks like a slow grind higher in selected goods categories.
It’s easy to misread a price-level effect as “no inflation”
A tariff can create a one-time upward shift in the level of prices for particular goods. That may not translate into continuously rising inflation rates unless tariffs keep escalating or spill into second-round effects (wage demands, broader pricing behavior, etc.).
If you’re watching only the headline prints, you can miss the micro reality: the pain is real, but distributed.
3) COVID raised the price floor—giving firms room to absorb tariffs through margin compression
This is the part of the tariff story that doesn’t fit neatly into political talking points, but it is central to how the economy is behaving now.
COVID didn’t just cause inflation. It changed the pricing environment.
Across many industries, the 2021–2023 period effectively reset price levels higher—sometimes because costs surged, sometimes because supply was constrained, sometimes because demand was strong enough to tolerate it. In boardrooms, it also reset assumptions about how frequently prices can change and how customers respond.
The Fed’s May 2025 note nods to this: it cites research suggesting that recent inflation increased the frequency with which firms change prices, and suggests that in 2025 tariffs may play a different role in firms’ pricing decisions than they did in 2018–2019. Federal Reserve
But the more important consequence for 2025 is this:
A higher starting price level gives companies a cushion.
Not forever. But long enough to matter.
When the entire economy has repriced upward over several years, the next cost shock—tariffs included—doesn’t always force an immediate round of list-price hikes. Instead, companies have options:
- absorb costs through lower gross margin,
- protect unit economics by shifting mix (premium SKUs, bundles),
- reduce promotional intensity, or
- look for supply-chain substitutions and renegotiated terms.
The Boston Fed has given a useful framework for understanding why this matters. Their 2025 analysis emphasizes that the inflation impact of tariffs depends crucially on how markups respond—comparing a “constant-dollar markup” world (where some of the cost shock hits profits) to a “constant-percentage markup” world (where firms pass through more fully). Federal Reserve Bank of Boston
In simple terms: tariffs don’t have to show up primarily in consumer prices. They can show up in corporate margins.
And that is precisely what many companies have been signaling—especially those selling into competitive consumer categories where demand has become more price-sensitive as household budgets normalize.
The Minneapolis Fed’s reporting aligns with that lived reality: their analysis describes retailers “eating much of the tariffs for now,” with gradual pass-through and uncertainty about permanence influencing pricing decisions. Federal Reserve Bank of Minneapolis
This matters for investors because it changes where tariff risk appears:
- If tariffs are absorbed through margins, you may not see a dramatic CPI response.
- But you can still see earnings pressure, weaker guidance, and changes in capex priorities.
- It becomes a sector and business-model story—import intensity, pricing power, brand strength, and competitive dynamics.
It also helps explain why two things can be true at once:
- Consumers don’t always experience a sudden, universal price jump attributable to tariffs.
- And yet, tariffs still meaningfully change corporate fundamentals.
In my view, the post-COVID environment makes margin compression a more likely short-run “shock absorber” than many macro models assume—especially in categories that already pushed pricing hard earlier in the decade and are now wary of testing customers again.
But that doesn’t mean tariffs are painless. It means the pain can be delayed, redistributed, and partially hidden from headline inflation measures—while still being economically real.
4) If tariffs “only hurt Americans,” why are foreigners so angry?
This is one of the most common misconceptions in the public debate:
“Tariffs are paid by Americans, so why do foreign countries care?”
Yes, the importer of record writes the check to U.S. Customs. But the idea that tariffs therefore “only affect Americans” is economically shallow. Foreign producers and foreign governments have several reasons to be angry—even if the duty is paid in dollars at a U.S. port.
First: tariffs threaten foreign market access
The U.S. remains one of the most important consumer markets in the world. A tariff is, in practice, a barrier to selling into that market. If your country’s exporters lose competitiveness, you lose volume, contracts, and potentially entire supply-chain footholds.
The St. Louis Fed’s 2018–2019 review documents just how large and direct these shocks can be. They note the tariff actions affected about $376 billion of Chinese exports to the U.S., around 50% of imports from China, and that Chinese imports of the targeted goods fell roughly 40% from early 2018 to late 2019. Federal Reserve Bank of St. Louis
If you’re sitting in Beijing (or in a factory town whose employment depends on exports), that is not an abstract policy debate. It is lost demand.
Second: someone else fills the gap—and that changes geopolitics
Trade diversion is not just an economics concept; it’s a strategic reality.
The same St. Louis Fed analysis describes how, as Chinese imports receded during that period, “other trading partners filled the void,” with imports from Mexico and the European Union rising relative to early 2018 levels. Federal Reserve Bank of St. Louis
From the targeted country’s perspective, tariffs don’t just reduce sales. They can permanently rewire supply chains in a way that is hard to unwind later.
Third: tariffs create investment uncertainty that outlives the policy headline
Factories, supplier relationships, tooling, logistics networks—these are long-duration commitments. When tariff policy becomes volatile or broad-based, foreign firms have to re-evaluate where to allocate capital and how much risk to assign to U.S. demand.
That uncertainty alone can create a chilling effect. It’s also why tariff disputes can spill into areas that have nothing to do with trade—diplomatic cooperation, industrial policy, and currency management.
Fourth: tariffs can still hit foreign producers through pricing pressure and bargaining power
Even if the importer pays the tariff, the economic burden can be split across the supply chain through negotiated price concessions, changed contract terms, and shifts in volumes.
The Minneapolis Fed piece, for example, reports that import price indices weren’t showing foreign exporters “eating” the tariffs in an obvious way at that moment—implying the burden was largely domestic early on—but it also highlights the complexity and the time-varying nature of pass-through. Federal Reserve Bank of Minneapolis
In plain language: who “pays” is not a slogan. It’s a moving target.
Fifth: tariffs can reduce welfare without showing up as inflation
This is a subtle point, but an important one. Tariffs can reduce product variety, shift quality, or change what’s even stocked—effects that inflation data can fail to capture cleanly.
The Minneapolis Fed discussion explicitly raises concerns beyond sticker prices, including reduced variety and quality over time. Federal Reserve Bank of Minneapolis Those welfare losses matter to consumers, and they matter to foreign producers who lose shelf space or category presence.
So, yes—the duty is collected in the U.S. But foreigners are angry because tariffs can reduce their sales, disrupt their industrial strategy, create long-term uncertainty, and shift global supply chains in ways that can be permanent.
Where this leaves the macro outlook
If you want a single sentence takeaway, it’s this:
Tariffs are simultaneously a revenue stream, cost shock, and a supply-chain reordering mechanism—and the macro impact depends on where the burden lands: consumers, companies, or trading partners.
Right now, the best evidence suggests:
- Tariff revenue has become large enough to influence fiscal narratives and bond-supply expectations. CRFB+1
- Tariffs have produced measurable inflation pressure in trade-exposed goods categories, but pass-through has been partial and uneven, and some effects are gradual. Federal Reserve+2Federal Reserve Bank of St. Louis+2
- The post-COVID price reset has made margin compression a plausible near-term “shock absorber,” muting immediate pass-through to consumers in some categories. Federal Reserve Bank of Boston+1
- Foreign backlash is rational because tariffs affect market access, investment planning, and supply-chain positioning—not just who remits the tax. Federal Reserve Bank of St. Louis+1
For investors, that points to a more nuanced playbook than “tariffs equal inflation.”
In some periods, tariffs may show up more clearly in CPI/PCE. In others, they may show up in earnings revisions, margin commentary, capex delays, and dispersion between companies with pricing power and those without. And in still others, they may appear most forcefully through the bond market—via changing expectations about deficits, issuance, and policy durability.
One way or another, tariffs are no longer just an argument about trade. They are becoming part of the macro architecture—and markets will treat them that way whether we like it or not.
Disclosure: Copyright 2025 Silicon Valley Capital Partners. This commentary is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Views are as of the date published and are subject to change without notice.