U.S. deficit tops $2T as record tariffs barely dent the gap

The U.S. deficit will pass $2 trillion this fiscal year, even though the government is pulling in $350 billion annually from tariffs. That number sounds huge, and it is, but it barely touches the mess. In August alone, the U.S. posted a $345 billion deficit, the biggest monthly shortfall so far this year.

That same month, it also collected $31 billion in tariffs, a new all-time monthly record. But do the math. Tariffs covered less than 10% of the damage.

This has been the trend for months. Every single one has brought in $300 billion-plus in new deficit spending. And we’re not slowing down. If this pace keeps up, the 2026 deficit could shoot past $2.7 trillion. 

The government is clearly earning more on trade, but it’s still spending way more than it’s taking in. Tariffs are at record levels, but they’re not even close to filling the gap.

Tariffs surge to 90-year highs but can’t fix the numbers

The annual tariff revenue, now sitting at $350 billion, has gone up 355% since last year. That puts it at 18% of household income taxes, a level not seen in over eight decades. Before 2025, this share averaged just 4%. It never crossed 10%, not even during Donald Trump’s first trade war in office.

And now? This is the highest effective tariff rate the country has seen since 1935, sitting at 17.3%. Even though people keep hearing about “trade deals,” the tariffs haven’t gone anywhere. The U.S.-China tariffs have been paused since May 12, but the White House is pushing for a 90-day extension of the agreement.

These changes haven’t stopped the money from pouring in. Still, they haven’t done a thing to slow the deficit. Despite all this, markets seem unfazed. The S&P 500 has climbed $16 trillion in value since April and has posted nearly 30 all-time highs in 2025 alone.

Carson Group says it’s now seen its sixth 5-month stretch of 30%+ gains since 1975. Every time this happened in the past, the next year averaged a return of 18.1%. But it wasn’t always green candles. Earlier this year, the index dropped 10.2% in the first 73 trading days, when investors were pricing in tariff shocks. That pricing is now gone. Investors have moved on.

While all this tariff cash comes in and inflation remains above 3%, Jerome Powell’s team is pushing ahead. The long end of the Treasury yield curve hasn’t dropped because bond markets don’t believe this can last. Everyone watching knows the deficit is not getting better.

Donald Trump is doubling down on trade diplomacy, but it’s not changing the fact that government spending is running wild. If there was any hope that tariffs would help balance things out, August killed that. The U.S. made history collecting $31 billion in tariffs in one month, and still had a $345 billion gap to fill. That’s eleven times more red ink than tariff gold.

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