"Michael Gapen draws a striking conclusion in his Monday research note, US Economics Weekly: "Tariffs have been a tax on capital, so far." In the second quarter of 2025, U.S. corporations largely absorbed the escalating cost of tariffs, according to Gapen's team, offsetting higher non-labor costs with reductions in labor costs and profitability rather than passing them directly onto consumers."
"Since returning to office, President Trump has expanded "reciprocal tariffs" across major U.S. trading partners, collecting a record $25 billion in July alone-triple the amount from late last year. The Committee for a Responsible Federal Budget (CRFB) reports tariffs are on track to inject $1.3 trillion in new revenue by the end of Trump's current term and as much as $2.8 trillion through 2034."
"Gapen is wrestling with a question that has been plaguing many other economists, about how 2025's strong economy doesn't feel like it, which he calls "the mystery between solid spending data and weak hiring." He believes it "can be explained by a corporate sector that absorbed the initial cost of tariffs and reduced unit labor costs and profitability rather than raising prices." Yale Management"
Tariffs are functioning as a tax on capital so far. U.S. corporations absorbed rising tariff costs in Q2 2025 by reducing non-labor expenses, cutting unit labor costs, and lowering profitability rather than raising consumer prices. That behavior contrasts with 2021–2022 when businesses raised prices more than costs, boosting profits. Expanded reciprocal tariffs have produced record monthly revenue and are projected to generate large sums over the coming years, potentially adding trillions to federal receipts by 2034. The absorption of tariff costs by firms helps explain strong consumer spending alongside weak hiring in 2025.
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