U.S. tariff revenue has reached an astonishing scale, annualized at $327 billion, accounting for 1.1% of GDP. Morgan Stanley stated that regardless of whether this huge tax burden is borne by producers or consumers, it will have a negative impact on economic growth.
On July 2, according to news from the Chasing Wind Trading Desk, Morgan Stanley in its latest research report stated that U.S. Customs net revenue reached $27.3 billion in June (as of the 26th), annualized to as high as $327 billion, accounting for 1.1% of nominal GDP in the first quarter.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ed9de823-b63d-4a46-9a7b-672186b3f28b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/ed9de823-b63d-4a46-9a7b-672186b3f28b.png"/>
To better understand the significance of this figure, Morgan Stanley compared the annualized tariff revenue of $327 billion with U.S. tax revenue in 2024: equivalent to 65% of corporate income tax in 2024 and 32% of non-withheld personal income tax. This may imply that American individuals and businesses are facing a burden equivalent to a significant tax increase.
Morgan Stanley emphasized that regardless of who ultimately bears the tariff costs, this massive tax revenue will not support economic growth. If businesses fully absorb the tariff costs, the profit margin of U.S. non-financial corporations will drop from 13.8% to 11.7%, below the past 15-year average level of 12.2%.
Morgan Stanley believes that the impact of tariffs far exceeds market expectations, closely monitoring signals of economic slowdown such as declining air passenger volume, and recommends investors to go long on U.S. Treasury bonds and short on the dollar.
<h2>Tariff Revenue Reaches Historic High</h2>
According to monthly data released by the U.S. Treasury, U.S. Customs net revenue rapidly climbed from $15.6 billion in April to $22.2 billion in May, and then to $27.3 billion in June, showing a clear accelerating upward trend.
Morgan Stanley pointed out in its report that if tariffs are viewed as tax revenue, the scale of this figure is shocking:
<blockquote>
Equivalent to 65% of corporate income tax revenue in 2024;
Equivalent to 10% of withheld personal income tax and FICA tax revenue;
Equivalent to 32% of non-withheld personal income tax revenue.
</blockquote>
<h2>Corporate Profit Margins Under Severe Pressure</h2>
The impact of tariffs on corporate profitability is becoming evident. Based on data from the first quarter of 2025, the annualized tariff cost is equivalent to 15% of non-financial corporate after-tax profits.
According to Morgan Stanley's calculations, in the first quarter of 2025, the profit margin of U.S. non-financial corporations is 13.8%, but it is currently near the past 15-year average level of 12.2%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e3fbc3fa-0b91-4ebd-ba4a-e888c4ad9db3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e3fbc3fa-0b91-4ebd-ba4a-e888c4ad9db3.png"/>
Morgan Stanley stated,
<blockquote>
If businesses fully absorb the tariff costs, the profit margin will drop from 13.8% to 11.7%, 0.5 percentage points below the 15-year average level.
If companies pass on 75% of the tariff costs to consumers, profit margins will be 1.1 percentage points higher than the 15-year average level;
If companies pass on 50% of the tariff costs to consumers, profit margins will be 0.6 percentage points higher than the 15-year average level;
If companies pass on 25% of the tariff costs to consumers, profit margins will return to the 15-year average level;
If companies pass on all tariff costs to consumers, profit margins will be 0.5 percentage points lower than the 15-year average level.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a3e9ef80-d545-4a8f-8c3d-393f95031c7a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a3e9ef80-d545-4a8f-8c3d-393f95031c7a.png"/>
</blockquote>
<h2>Economic Growth Faces Downside Risks</h2>
Morgan Stanley emphasized in its report that regardless of who ultimately bears the tariff costs, this massive tax will not support economic growth. This is consistent with the view of Morgan Stanley economists that the outlook for the U.S. economy is &#34;tilted towards downside risks.&#34;
The report also pointed out that, in addition to tariff pressures, other economic indicators are showing signs of slowing down. Data from the U.S. Transportation Security Administration shows:
<blockquote>
As of May, air passenger traffic grew only 1.7% year-on-year, far below the pre-pandemic growth rate of about 6%.
In February, passenger traffic decreased by 3.0% year-on-year, far below pre-pandemic levels, reflecting weak consumer activity.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/604880ee-2631-4ad9-b7a3-be0d7dde8c5a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/604880ee-2631-4ad9-b7a3-be0d7dde8c5a.png"/>
</blockquote>
Based on the above analysis, Morgan Stanley maintains the following investment recommendations:
<blockquote>
Bullish on U.S. Treasuries: Increased downside risks to the economy provide further room for interest rate declines;
Bearish on the U.S. dollar: Deteriorating fundamentals of the U.S. economy and a shift in Federal Reserve policy expectations towards easing.
</blockquote>
Morgan Stanley stated that investors should pay attention to market movements around July 9 and suggested increasing long positions in U.S. Treasuries during times when tariff news drives up yields.
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U.S. tariff revenue has reached an annualized $327 billion, accounting for 1.1% of GDP. Morgan Stanley pointed out that this huge tax burden, whether borne by producers or consumers, will have a negative impact on economic growth. The cost of tariffs could lead to a decline in non-financial corporate profit margins from 13.8% to 11.7%. Additionally, Morgan Stanley recommends that investors go long on U.S. Treasury bonds and short the dollar to hedge against the risk of economic slowdown

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Morgan Stanley

U.S. tariff revenue has reached an annualized $327 billion, Morgan Stanley: Such a large tax revenue, regardless of who pays it, is not good for the economy