Trade and Tariffs

Treasury and budget data show tariff revenue is far too small to substitute for federal income taxes — FY2025 tariffs are about $195 billion versus roughly $2.7 trillion in annual individual income taxes, and the Tax Foundation estimates current tariff policy would raise about $2.1 trillion over 10 years versus roughly $32 trillion in individual income taxes, calling full replacement "mechanically impossible." Analysts also note a $2,000 "tariff dividend" would cost $300–$600 billion (more than current tariff receipts), a tariff-funded tax cut would mainly benefit high earners, and any such shift would require Congress to rewrite the tax code and faces pending legal challenges.

President Trump again threatened a 5% tariff on Mexico via Truth Social unless Mexico immediately releases more Rio Grande water, saying he has “authorized documentation” to impose the duty — a reprise of an April confrontation when Mexico instead agreed to transfer reserves and boost flows and tariffs were not imposed. Mexico’s President Claudia Sheinbaum said her government will seek a solution that helps the U.S. without risking Mexican people or agriculture, noting immediate delivery of 200,000 acre-feet is constrained by pipe sizes and other physical limits and that the 1944 treaty allows deferred deliveries after the extraordinary 2023–24 drought; U.S. and Mexican officials, including USDA Secretary Brooke Rollins and acting foreign minister Roberto Velasco Álvarez, met Tuesday in the fifth meeting this year to try to resolve the dispute.