Eleanor Pringle
Sun, August 17, 2025
Sun, August 17, 2025
FORTUNE
President Trump says his tariff revenues will both pay down America’s $37 trillion debt and possibly fund a public “dividend,” but Treasury data shows they fall short of even covering monthly interest costs. In exclusive interviews with Fortune, Wharton’s Professor Joao Gomes and AEI’s Desmond Lachman warned that while tariffs may slow debt growth, they won’t meaningfully reduce it. Markets are largely skeptical of Trump’s math despite some unconventional revenue wins.
President Trump says his tariff revenues will both pay down America’s $37 trillion debt and possibly fund a public “dividend,” but Treasury data shows they fall short of even covering monthly interest costs. In exclusive interviews with Fortune, Wharton’s Professor Joao Gomes and AEI’s Desmond Lachman warned that while tariffs may slow debt growth, they won’t meaningfully reduce it. Markets are largely skeptical of Trump’s math despite some unconventional revenue wins.
President Trump has a two-pronged plan for the proceeds of his tariff regime. Firstly, he says, it’s going to pay down America’s $37 trillion national debt. Secondly, he’s considering sharing the spoils with the public.
“The purpose of what I’m doing is primarily to pay down debt, which will happen in very large quantity,” Trump told media earlier this month. “But I think there’s also a possibility that we’re taking in so much money that we may very well make a dividend to the people of America.”
The plan sounds welcome, in theory. But there’s just one problem. At present, tariff revenues don’t even cover the interest on the debt—let alone reduce its overall size.
According to Treasury data seen by Fortune, the accrued interest expense on Treasury notes in July alone was $38.1 billion. Add to that $13.9 billion in interest on Treasury bonds, $2.85 billion on Treasury Floating Rate Notes (FRN) and a total of $6.1 billion across Treasury Inflation-Protected Securities (TIPS) assets. The bill is eye-watering: The total comes to $60.95 billion for the month.
By contrast, Treasury statements show that tariffs only brought in $29.6 billion to offset it. An impressive figure, but still not enough to rival interest payments.
Of course, the White House could pay off some of its debt and reduce interest payments by deploying the tariff revenues directly to the bottom line. Governments have a number of ways to pay off debt, either by paying off bonds at maturity instead of rolling them over, or launching a buyback scheme in order to retire the bonds and reduce total outstanding debt.
It seems that the White House is not yet enacting a plan for the latter option. A tentative schedule of buyback operations for August 2025 shows the Treasury intends to spend nearly $40 billion buying back various security types and maturity ranges. However, compared to a similar schedule from August last year, this is $10 billion less than the Biden administration had accounted for.
Looking forward, if the Trump team does intend to pass through circa $30 billion a month toward offsetting the national debt, it would have accrued a gargantuan $360 billion payment over a year. This figure is less than 1% of America’s national debt, at the time of writing.
Of course, those on the bullish end of the economic scale are unconcerned by the notion of paying off national debt because a) the bond market forms a core part of the economy, b) the U.S. could grow its way out of any default or debt crisis, and c) the nation is in control of its own fate because its central bank has the ability to ease the cost of borrowing.
Nonetheless, warnings are coming from some of the most significant corners of the economy. In the private sector, JPMorgan Chase’s CEO Jamie Dimon believes America is barreling towards a predictable crisis; in the public sector, Fed chairman Jerome Powell believes it’s time to have an “adult conversation” about debt.
And the president himself is clearly aware of the issue, pushing efficiency and cost-cutting to bring down deficits. The only problem is, economists can’t quite figure out his maths.
The White House told Fortune: “America’s debt-to-GDP ratio has actually declined since President Trump took office – and as the administration’s pro-growth policies of tax cuts, rapid deregulation, more efficient government spending, and historic trade deals continue taking effect and America’s economic resurgence accelerates, that ratio will continue trending in the right direction.
“That’s on top of the record revenue that President Trump’s tariff policies are bringing in for the federal government, and cooled inflation paving the way for interest rate cuts.”
Offsetting, not repaying
By Professor Joao Gomes’s calculations, President Trump’s tariff regime is netting his expenditure at zero as opposed to improving the balance sheet.
The Wharton professor of finance and economics (at President Trump’s alma mater, the University of Pennsylvania) believes the tariff income will offset the costs of the Oval Office’s “One Big, Beautiful Bill Act”—estimated by the Congressional Budget Office to add $3 trillion to the debt by 2030—and not go much further.
“They leave the national debt picture similar,” Professor Gomes tells Fortune in an exclusive interview. “The idea that [tariffs are] going to pay down the national debt is of course greatly overstating it.”
That being said, Professor Gomes said tariffs are likely to have some useful dragging effects on the speed at which America’s national debt is accumulating. The White House said it expects its bill to reduce the much-watched debt-to-GDP ratio to 94% from its current standing of 121% by increasing economic growth.
“There’s no question of us paying down the debt,” Professor Gomes added. “Every year the government needs $1.8 trillion of net new borrowing, so that number could go down, but before we have any questions about repaying we first need to close that gap—and 1.8 trillion is impossible to close … the best we could hope for is if the tariffs turn out to generate enormous amounts of revenue [and] reduce that annual budget gap, which would make the debt grow less quickly.”
“The idea that somehow in the debt is gonna go down, we’re gonna start buying things back and so on and reduce the debt in dollar terms is just unimaginable. We’ll never get that much revenue.”
Professor Gomes was echoed by Dr Desmond Lachman, a senior fellow at the American Enterprise Institute. He told Fortune in an exclusive interview: “[For Trump] to say that he’s going to raise maybe $300 billion is a drop in the ocean in relation to the amount of red ink they’ve got. The country’s on a really dangerous debt trajectory.”
Signals to markets
How much of a problem national debt proves to be ultimately comes down to foreign investors, and their confidence in the U.S. government’s ability to pay its bills. Approximately 26% of America’s debt is held by foreign countries according to The Conference Board, presenting significant issues if those investors decide to take flight.
Dr Lachman believes that while President Trump may be framing tariffs as bringing back jobs or paying off debt to be more politically palatable, investors will see through the rhetoric. “Markets aren’t dumb. They can do the arithmetic and figure out that this is nonsense,” he said.
The former deputy director for the International Monetary Fund’s (IMF) Policy Development and Review Department added that the continued flight to gold (prices are up 27% over the past year) is indicative that markets no longer view U.S. Treasuries as the ultimate safe haven.
“People are worried that this government’s not serious about economic policy,” Dr Lachman said. “Trump can say what he likes. A comment I think is great is: One thing about the bond markets is that they can’t be primaried. In bond market, the money’s gonna move. People just want to protect their cash, they’re not afraid of being bullied by Trump if the numbers don’t add up.”
Counter to Dr Lachman’s point is the fact Treasury yields have stayed relatively flat over the past couple of years. 10-year is at around 4.3%, and was the same in late-October 2022, while 30-year has hung around the 4.8% mark since 2023.
Due to this, Professor Gomes believes the market isn’t alarmed by the Trump team’s unorthodox methods of balancing the debt. He said: “There’s interesting and peculiar things about this that we’ve all noticed. For example, the news earlier this week that Nvidia is gonna give effectively a 15% tax to the federal government for any exports to China certainly brings an extra source of revenue to the government that is not going to be small.”
“The ability of this president and this administration to find strange ways” to generate revenue may convince markets of Trump 2.0’s sincerity when it comes to the debt, Professor Gomes added, “I’m not sure I would discount that ability to continue to do things that I would not support, and I don’t think [are] great ideas, but at the end of the day, you cannot deny that they bring strange forms of revenue that do change the debt picture.”
And while there are two ends of the spectrum on who will end up paying for the tariffs (at one end Trump, saying it will be foreign nations, at the other end the likes of Goldman Sachs says the majority of the prices will be paid by U.S. consumers), the administration is proving it can “extract revenues.”
“Whatever you think of the methods,” Professor Gomes added, “If it’s an issue they can find ways to do this.”
A turning point?
National debt is often described as a game of chicken played by one administration then the next, adding to the debt and risking crisis instead of introducing potentially unpopular policy to address it (austerity).
Trump’s unusual approach to revenue generation shouldn’t be viewed as an end to that game, said Professor Gomes, but merely a delay of any reckoning. “It seems clear that suspicious as [markets] are of the policies they feel confident that that’s not going to happen at the moment,” the economist said. “We would need something, some other event of some type—a serious war or conflict—the things that really change paradigms” to prompt such a crisis, he added.
The Conference Board is not so convinced. “The debt crisis is here” it said in a note shared with Fortune, outlining a six-step program to reduce the debt-to-GDP ratio to 70% within 20 years. This includes, among a range of ideas, establishing a bipartisan committee for fiscal responsibility, enacting tax reform to increase revenues in a fair way, and develop a package of reform for social security.
This story was originally featured on Fortune.com
Trump’s reciprocal tariffs could be struck down as soon as this month — and the administration is warning of economic apocalypse
Jason Ma
Sat, August 16, 2025
Jason Ma
Sat, August 16, 2025
FORTUNE
President Donald Trump and his Justice Department have issued doomsday warnings recently on what would happen if a federal appeals court rules against the administration in a legal challenge to his so-called reciprocal tariffs. James Lucier at Alpha Capital Partners said the court could issue a ruling later this month or next month.
The Trump administration sees complete disaster for the U.S. economy if its reciprocal tariffs are struck down, revealing its level of concern as a court is expected to issue a critical decision soon.
On July 31, a federal appeals court heard arguments in a case challenging the tariffs’ legal basis under the International Economic Emergency Powers Act (IEEPA), and the judges expressed deep skepticism about the administration’s side.
In a note this past week, James Lucier at Capital Alpha Partners said a decision is expected by the end of September, but could come as soon as late August. A unanimous or near-unanimous ruling could give the Supreme Court cover to avoid taking the case immediately and reject the administration’s request to issue a stay that would keep the tariffs in place in the meantime.
The dire warnings also represent “a remarkable change in tune by the administration, which until now has always insisted that it had legal authority to get the deals done one way or another even if the IEEPA tariffs were struck down,” he added.
Trump’s “Liberation Day” tariffs helped leverage a series of trade deals, including an agreement with the European Union, which pledged to invest $600 billion in the U.S. and buy $750 billion worth of U.S. energy products, with “vast amounts” of American weapons in the mix. Similarly, the U.S.-Japan trade deal entails $550 billion of investments from Tokyo.
‘Financial ruin’
The U.S. hasn’t received immediate cash transfers in those amounts. Still, in a letter to the U.S. Court of Appeals for the Federal Circuit on Monday, Justice Department officials suggested the government would suddenly owe everyone money—leading to catastrophe.
“The President believes that our country would not be able to pay back the trillions of dollars that other countries have already committed to pay, which could lead to financial ruin,” wrote Solicitor General D. John Sauer and Assistant Attorney General Brett Shumate.
They also warned that unwinding the trade deals would lead to a “1929-style result.” That echoed a post from Trump on Truth Social days earlier, when he predicted another Great Depression would hit America if the court rules against his tariffs.
Sauer and Shumate turned up the volume even higher in their subsequent letter, elaborating further on the depression warning.
“In such a scenario, people would be forced from their homes, millions of jobs would be eliminated, hard-working Americans would lose their savings, and even Social Security and Medicare could be threatened,” they wrote. “In short, the economic consequences would be ruinous, instead of unprecedented success.”
‘The president is in a jam’
To be sure, the government has generated significant tariff revenue since April, and importers who paid the reciprocal duties could seek reimbursement if they are struck down.
But that’s only about $100 billion and also includes revenue from sectoral tariffs that were imposed under a separate legal basis that’s not at risk.
“The real problem, the letter implies, is that Trump does not have legal authority to replicate the IEEPA tariffs under other tariff statutes if the court strikes the IEEPA tariffs down,” Lucier explained. “In other words, the president is in a jam because if the court strikes down the IEEPA tariffs, his trade deals have no legal basis.”
A note from Yardeni Research on Wednesday also pointed out that the administration is becoming increasingly concerned about losing the court case.
The letter from the Justice Department officials appears to anticipate that they will lose the case as they are asking for a stay if the court goes against them.
There will be “messy” consequences if reciprocal tariffs are struck down, according to Yardeni, as Trump needs the revenue from tariffs to reduce the budget deficit and help to lower bond yields.
“If he loses in court, these yields might move higher. Stock prices might decline on this news initially due to a new round of policy uncertainty,” the note said. “So the dire tone in the letter is understandable, even though it is a wee bit over the top.”
This story was originally featured on Fortune.com
President Donald Trump and his Justice Department have issued doomsday warnings recently on what would happen if a federal appeals court rules against the administration in a legal challenge to his so-called reciprocal tariffs. James Lucier at Alpha Capital Partners said the court could issue a ruling later this month or next month.
The Trump administration sees complete disaster for the U.S. economy if its reciprocal tariffs are struck down, revealing its level of concern as a court is expected to issue a critical decision soon.
On July 31, a federal appeals court heard arguments in a case challenging the tariffs’ legal basis under the International Economic Emergency Powers Act (IEEPA), and the judges expressed deep skepticism about the administration’s side.
In a note this past week, James Lucier at Capital Alpha Partners said a decision is expected by the end of September, but could come as soon as late August. A unanimous or near-unanimous ruling could give the Supreme Court cover to avoid taking the case immediately and reject the administration’s request to issue a stay that would keep the tariffs in place in the meantime.
The dire warnings also represent “a remarkable change in tune by the administration, which until now has always insisted that it had legal authority to get the deals done one way or another even if the IEEPA tariffs were struck down,” he added.
Trump’s “Liberation Day” tariffs helped leverage a series of trade deals, including an agreement with the European Union, which pledged to invest $600 billion in the U.S. and buy $750 billion worth of U.S. energy products, with “vast amounts” of American weapons in the mix. Similarly, the U.S.-Japan trade deal entails $550 billion of investments from Tokyo.
‘Financial ruin’
The U.S. hasn’t received immediate cash transfers in those amounts. Still, in a letter to the U.S. Court of Appeals for the Federal Circuit on Monday, Justice Department officials suggested the government would suddenly owe everyone money—leading to catastrophe.
“The President believes that our country would not be able to pay back the trillions of dollars that other countries have already committed to pay, which could lead to financial ruin,” wrote Solicitor General D. John Sauer and Assistant Attorney General Brett Shumate.
They also warned that unwinding the trade deals would lead to a “1929-style result.” That echoed a post from Trump on Truth Social days earlier, when he predicted another Great Depression would hit America if the court rules against his tariffs.
Sauer and Shumate turned up the volume even higher in their subsequent letter, elaborating further on the depression warning.
“In such a scenario, people would be forced from their homes, millions of jobs would be eliminated, hard-working Americans would lose their savings, and even Social Security and Medicare could be threatened,” they wrote. “In short, the economic consequences would be ruinous, instead of unprecedented success.”
‘The president is in a jam’
To be sure, the government has generated significant tariff revenue since April, and importers who paid the reciprocal duties could seek reimbursement if they are struck down.
But that’s only about $100 billion and also includes revenue from sectoral tariffs that were imposed under a separate legal basis that’s not at risk.
“The real problem, the letter implies, is that Trump does not have legal authority to replicate the IEEPA tariffs under other tariff statutes if the court strikes the IEEPA tariffs down,” Lucier explained. “In other words, the president is in a jam because if the court strikes down the IEEPA tariffs, his trade deals have no legal basis.”
A note from Yardeni Research on Wednesday also pointed out that the administration is becoming increasingly concerned about losing the court case.
The letter from the Justice Department officials appears to anticipate that they will lose the case as they are asking for a stay if the court goes against them.
There will be “messy” consequences if reciprocal tariffs are struck down, according to Yardeni, as Trump needs the revenue from tariffs to reduce the budget deficit and help to lower bond yields.
“If he loses in court, these yields might move higher. Stock prices might decline on this news initially due to a new round of policy uncertainty,” the note said. “So the dire tone in the letter is understandable, even though it is a wee bit over the top.”
This story was originally featured on Fortune.com
