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Investing.com-- S&P 500 have long operated under the "Trump always chickens out," or TACO, premise, assuming President Donald Trump would shy away from aggressive tariff action to avoid upsetting the stock market. But new data showing customs duties in June were a staggering 301% higher than last year, helping the Treasury turn a surprise surplus, is now challenging that very notion. With this revenue-generating machine proving so effective, some are questioning whether the administration could now be chasing a less bluff and more bucks tariff strategy?
The U.S. government posted a surprise surplus in June, with the Treasury Department announcing a positive balance of just over $27 billion. This follows a $316 billion deficit in May, and much of the turnaround came courtesy of customs duties, which totaled about $27 billion for the month—up a massive 301% than June 2024. On an annual basis, tariff collections have now hit $113 billion, an 86% increase over the previous year. This unexpected influx could subtly reshape the administration’s approach.
“Traders are staying complacent in the face of the new (’August 1’) US import tariffs; they may reason that Pres. Trump doesn’t want to preside over another market crash. But there’s also the more ominous possibility that Trump has ’moved on’ from using tariffs to extract concessions, and is now using tariffs to boost tariff revenues," Macquarie economists warned in a recent note.
Traders are still operating under the "Trump always chickens out," or TACO, premise, assuming the President won’t risk another market sell-off by implementing the looming August 1 tariffs. Yet, there’s a more "ominous possibility" that President Trump may have "moved on" from using tariffs purely as a bargaining chip for trade deals.
Trump’s administration has so far only secured three "deals," largely framework agreements, while concurrently imposing higher tariff rates on a widening array of countries, including China, Hong Kong, Japan, and the Philippines. This indicates a potential strategic shift where tariffs are less about negotiation and more about bolstering federal coffers.
This need for cash into the federal coffer is further underscored by the White House’s budget plans. Despite the passage of the "One Big Beautiful Budget Act," or OBBBA, and its associated high deficit projections, the administration’s goals for lower deficits rely heavily on increased tariff revenue, alongside optimistic growth forecasts from deregulation.
The current pace of collections significantly exceeds earlier estimates. While April projections put annual tariff revenue at around $200 billion, actual U.S. tariff-based federal revenue already hit $118 billion by mid-June 2025. Treasury Secretary Scott Bessent has even noted that it "could grow to $300 billion by" year-end, potentially reaching $300-$350 billion at a sustained run rate. Such figures would significantly offset the OBBBA’s impact on the deficit, making the allure of tariff revenue increasingly hard to ignore.
This potential "fiscal capture" of tariff policy should not be out of place in the current climate, Macquarie says, pointing out that the passage of the OBBBA, with its large deficit projections, likely played a role in pushing the administration towards tariffs as a revenue source. This aligns with senior trade adviser Peter Navarro’s long-held advocacy for high tariffs as a revenue generator, they added.
The implications for financial markets are significant that extend beyond just trade. This "fiscal capture" narrative also helps explain President Trump’s desire to replace the Federal Reserve’s Chair, the economists said. The aim, they argues, is to "fiscally capture" monetary policy, essentially compelling the Fed to ease the federal government’s interest burden and prevent debt levels from spiraling further.
A "fiscally captured" Fed, under such a scenario, might be obligated to inflate away the real value of federal debt, either by keeping policy rates excessively low or by resorting to quantitative easing, Macquarie said.
If this tariff strategy and the broader "fiscal capture" narrative prove to be true, then the U.S. yield curve may steepen further.
While short-term Treasury yields might remain suppressed, long-term Treasury bonds could face growing disdain from reserve allocators. Concerns about the dollar’s long-term purchasing power and structurally higher inflation could lead to a rise in yields at the long end of the curve, even if the risk of a federal government default remains low.
"The yield spread between short-term and long-term yields, although no longer inverted, remains much lower than historic norms, and may have room to rise," Macquarie said.