“Tariffs to Fill the Deficit”: Trump Pressures 60 Countries with Forced-Labor Duties, but Inflation and Higher Rates Could Backfire on US Finances

Trump administration invokes Section 301 to impose another round of tariffs on 60 countries
Washington seeks tariff revenue to offset mounting deficits and debt
Inflation, higher interest rates, and slower growth could ultimately worsen fiscal risks

The administration of US President Donald Trump has imposed forced-labor-related tariffs on 60 countries under Section 301 of the Trade Act. By maintaining the aggressive tariff strategy launched with its “Liberation Day” declaration in April 2025, the administration is treating import duties as a central policy instrument capable of exerting commercial pressure while simultaneously increasing federal revenue. Market observers, however, warn that if tariff costs are passed on to American businesses and consumers, raising inflation and Treasury yields, the resulting increase in government interest expenses and decline in tax revenue caused by slower growth could exceed the additional customs income and ultimately deepen the country’s fiscal risks.

United States Establishes New Tariff Regime

The Office of the United States Trade Representative announced on July 23, local time, that tariffs of between 10% and 12.5% would be finalized on imports from a total of 60 countries beginning at 5 p.m. that day. The USTR said the measures were necessary because the countries had either failed to prohibit imports of goods produced with forced labor or had not effectively enforced existing restrictions, thereby placing an unfair burden on the US trading system. The list includes many of America’s largest commercial partners and covers countries responsible for nearly 99% of total US imports. “President Trump recognizes that decades of moral persuasion have failed to eliminate forced labor from global supply chains,” US Trade Representative Jamieson Greer said. “The United States has prohibited the importation of goods made with forced labor for nearly a century, and it is time for our trading partners to do the same.”

The method used to calculate the tariffs differs by country. For South Korea and Japan, if the most-favored-nation tariff applied to a particular product is below 12.5%, the forced-labor duty will raise the total rate to 12.5%. If the existing most-favored-nation rate is already 12.5% or higher, the additional forced-labor tariff will be set at zero. The European Union and Taiwan will be subject to the same structure using a 10% threshold. Separate calculations were established for economies that have already concluded trade agreements with the United States. The USTR argued that establishing an overall tariff ceiling in this manner was consistent with reciprocal trade agreements and appropriate for encouraging the affected economies to introduce and effectively enforce bans on goods produced with forced labor. A 10% tariff will apply to 17 countries, including the United Kingdom, India, Mexico, Canada, and Argentina, while the remaining countries will face a 12.5% rate.

Trump Threatens Retaliation Against EU Big Tech Regulation

The United States has also signaled that additional tariffs could be imposed on the European Union. In a July 24 post on his social media platform Truth Social, Trump wrote that he had learned Google, which he described as a highly advanced and remarkable company, had been subjected to an additional $1 billion fine by the EU without adequate explanation. “The United States is not Europe’s piggy bank, and we will not allow it to become one,” he wrote. Trump added that his administration would immediately launch a Section 301 investigation into what he called the “looting” of American companies and taxpayers, arguing that the fines should be repaid and that substantial tariffs were likely to be imposed as quickly as possible. The EU had fined Google €890 million on July 23 for allegedly violating the Digital Markets Act.

Trump also claimed that the EU had imposed penalties of $15 billion on Apple, $3 billion on Meta, and $2.5 billion on Amazon “for no reason,” while the cumulative fines levied against Google had exceeded $18 billion. He characterized the EU’s enforcement practices as illegal and highly discriminatory. Market participants expect that any retaliatory tariffs introduced by the administration could equal or exceed the value of the penalties imposed on American companies. Some observers also believe Trump may expand the approach beyond the EU and use Section 301 investigations to impose tariffs on other countries accused of discriminating against US businesses.

Fiscal Risks Weigh on the United States

The Trump administration’s continued reliance on aggressive tariffs appears closely connected to the enormous financial pressure facing the federal government. According to the US Treasury, total federal debt has reached approximately $39.68 trillion. The figure stood at around $38.9 trillion in early May, meaning that the debt burden increased by roughly $800 billion in little more than two months. Of the total, approximately $31.91 trillion is debt held by the public, including securities owned by private investors, financial institutions, the Federal Reserve, and foreign governments. Another $7.77 trillion is held in federal government accounts.

The direct cause of the expanding debt is the country’s persistent fiscal deficit. According to the Treasury Department’s Monthly Treasury Statement, federal revenue totaled approximately $4.2 trillion between October 2025, when fiscal year 2026 began, and June 2026, while expenditure reached about $5.5 trillion. The cumulative deficit over the period amounted to approximately $1.4 trillion, an increase of $29 billion from the same period a year earlier. As the debt stock expands, the interest expense paid by the federal government is rising accordingly. The Congressional Budget Office estimates that net interest expenditure will reach $1 trillion in fiscal year 2026, equivalent to approximately 3.3% of gross domestic product.

Trump’s Tariff Strategy

The most direct way for the US government to increase revenue under these conditions would be to raise individual or corporate income taxes. Such a move would be politically difficult, however, because tax reductions remain a central component of the Trump administration’s economic agenda. Large cuts to Social Security, healthcare programs, defense spending, and other major expenditure categories would also provoke substantial resistance from Congress and voters. Tariffs, by contrast, can be imposed relatively quickly through executive authority under trade law without following the ordinary congressional process required for domestic tax increases. Because they appear on the surface to impose costs on foreign producers and exporting countries, they also tend to generate less immediate political resistance.

In April 2025, the Trump administration declared the chronic US trade deficit a national emergency and imposed extensive tariffs on numerous countries under the International Emergency Economic Powers Act. Although the official rationale was to correct trade imbalances and protect domestic manufacturing, the measures also functioned as an attempt to offset part of the revenue burden created by tax cuts and large fiscal deficits. In February 2026, however, the US Supreme Court ruled that the IEEPA did not grant the president authority to impose tariffs and declared the reciprocal tariff regime unlawful and invalid. After the legal foundation of that system collapsed, Trump invoked Section 122 of the Trade Act and introduced a temporary 10% tariff on a wide range of imported goods beginning on February 24. Section 122 allows the president to impose an import surcharge of up to 15% without a congressional vote when the United States is experiencing a large and serious balance-of-payments deficit.

Tariffs Are Not a Fiscal Cure-All

As the forced-labor tariffs reinforce the administration’s hard-line trade policy, experts warn that the strategy could ultimately worsen rather than improve the federal government’s financial position. Tariffs are not taxes borne exclusively by foreign governments or exporters; their economic costs spread over time to American importers, businesses, and consumers. The Federal Reserve Bank of New York estimated that approximately 90% of the burden created by tariffs imposed in 2025 ultimately fell on US companies and households. The Federal Reserve also calculated that tariffs implemented through November 2025 had raised core goods prices in the personal consumption expenditures index by 3.1% as of February 2026 and increased the overall core PCE price level by 0.8%.

Such inflationary pressure could increase the federal government’s interest burden. If tariff-driven price growth persists, the Federal Reserve will have less room to reduce its policy rate, and financial markets will incorporate expectations of prolonged high interest rates into Treasury yields. Investors may also demand higher returns for holding long-term government bonds while accepting increased inflation risk. The Treasury would then face higher borrowing costs when issuing new debt or refinancing maturing securities, creating the possibility that a substantial portion of the revenue collected through new tariffs would be offset by additional interest expenditure.

The fiscal benefits would weaken further if the tariffs contributed to an economic slowdown. When import duties reduce households’ real purchasing power and increase corporate production and investment costs, consumption, capital expenditure, and economic growth may all deteriorate. Weaker demand would reduce imports and therefore shrink the tax base on which tariffs are collected, while also depressing the federal government’s more important sources of revenue, including individual income taxes, corporate taxes, and payroll taxes. Retaliatory tariffs imposed by trading partners could create additional expenditure if Washington provides subsidies or other financial assistance to affected US exporters. Without structural expenditure reform or a more stable domestic revenue base, tariffs alone are therefore unlikely to resolve the country’s expanding national debt problem.