Economic Impact of Tariff Refunds

According to Apollo Global Management’s chief economist, Torsten Slok, tariff refunds have provided a temporary uplift to the U.S. economy and may contribute to the anticipated 4% growth in GDP for the third quarter. This analysis aligns with the Supreme Court’s decision in February that invalidated tariffs previously enacted by President Donald Trump under the International Emergency Economic Powers Act (IEEPA), with an estimated $166 billion set to be returned to affected businesses and importers, as noted by the Federal Reserve Bank of Atlanta.

Slok raised some questions about the robustness of economic growth in the absence of these refunds. This skepticism arises amidst rising costs for consumers and businesses, an effect likely intensified by the ongoing conflict in Iran. He estimated that these refunds could add around 0.2 percentage points to third-quarter growth, which was already trending above a 4% annualized rate in the Atlanta Fed’s GDPNow model when he shared his insights on August 15. This would represent a significant recovery from a contraction of 0.5% in the first quarter and a subsequent rebound to 3.0% growth in the second quarter.

Despite elevated prices impacting consumers and businesses, the economy has continued to expand. For instance, consumer prices edged up by 0.1% in July, following a 0.3% increase in June, while annual inflation remained at 2.7%, as reported by the Bureau of Labor Statistics. Core inflation, which excludes food and energy prices, rose by 0.3% in July and was up 3.1% from the previous year, indicating persistent pressure on households and businesses amidst overall economic growth.

Slok’s analysis also highlighted a notable change in federal customs receipts. Earlier in the year, tariff collections were showing solid positive figures, but these began to decline with a surge in refunds starting in May. By the time June and July rolled around, refund payments became substantial enough to push net customs receipts into negative figures.

This situation has been characterized as a “fiscal expansion,” with advocates suggesting that the refunds are not just boosting corporate profits but also contributing positively to economic growth. However, it’s essential to view these refunds not as an injection of new economic activity but rather as a reversal of funds businesses had previously paid to the government.

The Atlanta Fed has pointed out that the real economic impact of these refunds might be less significant than the headline figure of $166 billion might lead one to believe. Researchers from the Fed estimated that around one-third of the refunded amounts would likely benefit financially constrained companies, which could use the funds for investment, hiring, or cutting prices. In contrast, other businesses might choose to save the funds, pay off debt, or distribute them to shareholders.

Nevertheless, the refunds are already visible in the financial results of several major U.S. corporations. Numerous companies have reported receiving or claiming billions in IEEPA tariff refunds, as reflected in their SEC filings and earnings reports. For instance, Walmart is noted to have received approximately $2.9 billion, Apple nearly $2.2 billion, Ford about $1.3 billion in reimbursements related to IEEPA, and Nike around $986 million, as reported by The Wall Street Journal.