Tariff Refunds Will Make The Federal Spending Deficit Even Bigger

Key Takeaways

• A federal judge has ruled that the federal government must refund much of the tariffs it collected.
• The refunds could put a dent in the federal budget to the tune of $133 billion.
• The boost to the federal budget was one of the few widely agreed-upon benefits of the import taxes that economists mostly consider a drag on the economy.

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A federal court ruling in favor of tariff refunds reduces one of the economic upsides of import taxes—their benefit to the federal budget.

On Wednesday, a federal judge ruled that the government must refund the money collected under an emergency tariff provision the Supreme Court ruled illegal last month.

The order by Richard K. Eaton in the U.S. Court of International Trade could affect $133.5 billion worth of refunds paid before the tariff was struck down, Moody’s Analytics estimated. Around 2,000 companies have filed lawsuits seeking the return of the tariffs, Reuters reported.

What This Means For The Economy

The return of tariff revenue to businesses, if it goes through, will add $133 billion in cash back into businesses’ pockets, potentially providing a small boost to the economy.

The refund undermines what many analysts say is a benefit of import taxes: that they were on track to reduce federal spending deficits in the coming years. Although Trump has replaced part of the lost revenue by ordering a 15% global tariff, that is temporary and is likely to face legal challenges.

The refunds “could have a material impact on the fiscal picture,” Jim Reid, global head of macro and thematic research at Deutsche Bank, wrote in a commentary.

The Committee for a Responsible Federal Budget estimated the ruling against the tariffs and the refund of already collected revenue will add $1.7 trillion to the federal deficit over the next 10 years. Before the ruling, the Congressional Budget Office had estimated tariffs would reduce deficits by $3 trillion.

Related Education

What Is a Tariff and Why Are They Important?

Why Economic Uncertainty is Worse Than Bad News for Small Business Owners

The tariffs were meant to boost the economy by reviving manufacturing and helping secure favorable trade deals with foreign countries. However, many economists say the tariffs have been a drag on the economy, largely because they have created so much uncertainty among business leaders about future trade policy. Analysts across the spectrum had broadly agreed that the relief to the federal budget was a major benefit of the import taxes.

The fate of the refunds is still far from certain. The process is likely to be legally messy, Supreme Court Justice Brett Kavanaugh said last month in a dissenting opinion. President Donald Trump indicated his administration would fight the refunds, predicting the case would be “in court the next five years.”

In turn, several people have filed lawsuits seeking refunds of tariffs that companies passed along to customers. Last week, a Florida man filed a class-action lawsuit against FedEx seeking refunds.

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