jakiro
In July 2025, the US economy is at a critical turning point.The Treasury Department’s monthly budget report shows unexpected surpluses, tariffs and trade wars heat up significantly, Federal Reserve Chairman Jerome Powell faces resignation rumors, and Chicago Options Exchange (CBOT) data reveals strong market expectations for rising U.S. Treasury yields.Together, these events outline a complex economic picture, involving a profound game of fiscal policy, trade strategy and monetary policy.This article will analyze these trends in depth and combine the latest data to explore their potential impact on the US economy and global markets.
1. Monthly report of the Ministry of Finance: Behind the unexpected surplus
In June 2025, the Treasury Department reported that the government achieved a budget surplus of $27 billion, with revenue of $526 billion and expenditure of $500 billion.This result is exciting and contrasts with the $70 billion deficit in June 2024.Revenue increased from $466 billion to $526 billion, an increase of about 13%; expenditure decreased from $537 billion to $500 billion, an decrease of about 7%.This improvement is driven by a dual effort to increase taxes and spending control.
1.1 Income composition: personal income tax dominates, tariff income surges
-
Personal Income Tax: Individuals paid US$236 billion in June, and the cumulative amount of US$2 trillion in fiscal year 2025 (from October 2024 to October 2025), an increase of 6% from 1.89 trillion in the same period last year.Personal income tax accounts for the vast majority of government revenue, reflecting that the tax burden mainly falls on individuals.
-
Corporate Income Tax: It was only US$66 billion in June, with a cumulative US$366 billion in fiscal year 2025, a decrease of 6.6% from US$392 billion in the same period last year.The decrease in corporate tax contributions contrasts with the surge in corporate profits, highlighting the imbalance of tax policies.
-
Tariff revenue: Tariff revenue in June was US$26 billion, with a cumulative amount of US$108 billion in fiscal year 2025, a year-on-year increase of 300%, a sharp jump from US$55 billion in the same period in fiscal year 2024.The surge in tariff revenue is closely related to recent adjustments in trade policy.
1.2 Expenditure Structure: Challenges of Mandatory Expenditure
Government spending is mainly dominated by mandatory programs, including Social Security (about $1.2 trillion), Medicare and Medicaid (about $1.4 trillion), and net interest expenditure (about $750 billion).These projects account for the vast majority of the estimated $5.3 trillion in fiscal 2025 spending, and are difficult to reduce politically.For example, social security spending has grown by three times that of GDP since 1970, far exceeding the overall economic growth.
Interest expenses are another major pressure point.With federal debt surges (an estimated $33 trillion in fiscal 2025, accounting for about 120% of GDP), the high interest rate environment has pushed up debt costs.Net interest expenditure in fiscal 2025 is expected to account for 14% of total expenditure, close to a historical high.The only way to reduce interest expenses is to adopt a “fiscal-led” strategy, which is to lower the federal funds rate to zero, implement negative real interest rates and financial suppression policies, but this will push up inflation and asset prices, bringing significant risks.
1.3 Deficit trend: short-term improvement, long-term hidden worries
Despite the surplus in June, the cumulative deficit in fiscal year 2025 has reached US$1.3 trillion, and the annual deficit is expected to be US$1.88 trillion, worsening from the 1.2 trillion in fiscal year 2024.The proportion of deficits in GDP rose from 4.8% in 2024 to 6.5% in 2025, far higher than 1% in 2007, and is an all-time high in non-crisis times.The deficit in fiscal 2026 is expected to drop to $1.6 trillion, indicating that it may stabilize, but more data is still needed to confirm.
In the long run, deficit growth is driven by the growth rate of expenditure far exceeding revenue.Since 1950, the proportion of tax revenue to GDP has remained stable at 15-17%, while the proportion of government expenditure to GDP has increased from 15% to more than 25% in 2025.Debt growth is particularly staggering: federal debt has grown by 300% since 2007, while GDP and tax revenue have risen by only 100%.Every dollar of debt added only brings economic returns of 33 cents, highlighting fiscal inefficiency.
2. Tariffs and Trade Wars: New Variables in the Global Economy
In 2025, tariff policies have become the core of the US economic strategy, aiming to balance the trade deficit, increase fiscal revenue and protect domestic industries.However, the rapid escalation of tariffs triggered global countermeasures and market volatility.
2.1 Latest tariff updates
-
To Canada: Threats 35% tariffs on non-US-Mexico-Canada Agreement goods.Canada has postponed its retaliation and hopes to reach a new trade deal through negotiations.
-
For the EU and Mexico: Starting from August 1, a 30% tariff will be imposed on EU and Mexican goods, and the EU has threatened to counteract.
-
Copper tariffs: The 50% tariff on copper has been imposed, pushing up the copper price by 17-18%, and the current increase is stable at 11.8%.As the industry’s “copper doctor”, its price fluctuations reflect global economic expectations.
-
To Brazil: Strengthen tariff policies on Brazil, despite the U.S. trade surplus with Brazil (about $15 billion in 2024).This move is considered politically motivated and may damage bilateral relations.
2.2 Economic impact of tariffs
The surge in tariff revenues has provided new impetus for the finances.Tariff revenue is expected to reach US$300 billion in fiscal year 2025, equivalent to the total personal income tax for low-income groups (bottom 75%).The government promises to reduce or cancel income taxes for most people through tariff income.In theory, tariffs are mainly aimed at import costs rather than retail prices.For example, an iPhone worth $1,000 will cost about $500, and the 50% tariff will only add $250 to the cost.Ordinary income earners (such as $40,000 in annual income) need to consume $60,000 in tariff goods before they pay more than income tax due to tariffs, indicating that for most people, tariff policies may bring net benefits.
However, the inflationary effect of tariffs cannot be ignored.Federal Reserve officials (such as Goolsbee) warned that the rise in tariffs could push up prices and it would take months of inflation data (such as PCE) to consider cutting interest rates.In June 2025, the core PCE inflation rate was 2.6%, slightly higher than the Federal Reserve’s 2% target, and tariffs further pushed up the risk of imported inflation.
2.3 Chain effects of global response
Resistance to tariffs by the EU, Brazil and other countries may trigger a global trade war and disrupt supply chains.Rising copper prices have affected manufacturing costs, with global copper demand expected to grow by 3.2% in 2025 (data from the International Copper Research Organization), and tariffs may exacerbate supply tightness.The trade war may also weaken the competitiveness of US exports. The total U.S. commodity exports in 2024 will be US$2.5 trillion, accounting for 10% of GDP. Any retaliatory measures may impact related industries.
3. The gap between corporate profits and wages: unfairness of tax policies
Since the end of the 1971 gold standard, corporate profits have increased by 5878%, while average hourly wages have increased by only 821%.Globalization has led to outsourcing of high-paying jobs, benefiting low-cost countries, surging corporate profits, while wage growth for American workers lags.In 2025, corporate income tax fell by 6.6%, while personal income tax rose by 6%, exacerbating the inequality of tax burden.
For example, in fiscal 2025, personal income tax accounted for 78% of income and corporate income tax accounted for only 14%.This gap is in stark contrast to the explosive growth of corporate profits.The average profit margin of S&P 500 companies in 2024 reached 12.5%, a 20-year high, while the real wage growth of American workers (excluding inflation) was only 1.2%.Tariff policies protect domestic industries by increasing import costs and may indirectly support wage growth, but adjustments to the tax structure are more urgent.
4. Monetary policy and rumors of Powell’s resignation
4.1 The ins and outs of the rumors about Powell’s resignation
Recently, the head of the federal housing department (suspected Py) tweeted that “heard that Powell will resign”, but did not provide a reliable source.He subsequently cited the media that reported his tweets as “evidence” to form a circular citation.Despite the lack of solid evidence, the rumor is seen as pressure on Powell, reflecting policy differences between the administration and the Fed.The government tends to loosen monetary policy to support fiscal expansion, while the Federal Reserve emphasizes fighting inflation and keeping caution.
4.2 The Fed’s Policy Dilemma
The Fed faces double pressure: inflation risks caused by tariffs and high federal debt.In June 2025, the federal funds rate remained at 4.75-5%, and the market expects the possibility of a rate cut by the end of 2025 to be 40% (CME FedWatch tool).Goolsbee said more inflation data is needed to confirm the trend, showing the Fed’s wait-and-see attitude.
4.3 Treasury bond market trends
CBOT data shows that market expectations for rising Treasury yields have increased:
-
Five-year Treasury bond futures: Net short positions increased by 39,785 shares, with a total net short positions of 2.516 million shares.
-
Ten-year Treasury bond futures: Net short positions increased by 56,000, with a total net short positions of 840,000.
-
Two-year Treasury bond futures: Net short positions increased by 14,000 shares, a small amount.
These data suggest that market bet yield curves steeper and long-term interest rates (especially ten years) rise faster.This is consistent with “fiscal-led” strategies (such as rate cuts, issuance of short-term debts) that may drive up inflation and debt costs.In June 2025, the yield on the 10-year Treasury bond reached 4.2%, up 0.5 percentage points from the same period in 2024.
5. Future Outlook and Policy Recommendations
5.1 The necessity of fiscal reform
To reduce the deficit to GDP to a sustainable level of 2-3%, we need to start from both income and expenditure:
-
Income side: Reform the tax structure, increase the proportion of corporate income tax, and reduce personal tax burden.For example, restoring the minimum corporate tax rate to 25% (currently 21%) can add about $200 billion in revenue.
-
Spending side: Optimize the efficiency of mandatory expenditure, such as controlling cost growth through medical insurance reform.In 2024, medical insurance expenditure accounts for 5.8% of GDP and is expected to rise to 7% in 2030.
5.2 Balance of tariff policies
The growth in tariff revenue provides a buffer for the fiscal system, but excessive dependence needs to be avoided.suggestion:
-
Establish a transparent tariff exemption mechanism to reduce the cost of consumer goods to low-income groups.
-
Negotiate with trading partners to reduce retaliatory tariffs and maintain stability in global supply chains.
5.3 Coordination of monetary policy
The Fed needs to find a balance between fighting inflation and supporting economic growth.suggestion:
-
Maintain data-driven policies to avoid premature rate cuts.
-
Coordinate with the Ministry of Finance to clarify debt management strategies and reduce market concerns about rising yields.
6. Conclusion
The US economy is at a crossroads in 2025.The budget surplus in June injected a hint of optimism into the fiscal situation, but high deficits, tax injustice and trade war risks still pose challenges.The advancement of tariff policies provides new impetus for revenue growth, but it needs to fulfill its tax cut commitments while being wary of inflation and global countermeasures.Policy differences between the Federal Reserve and the government are intensifying, and market expectations for rising yields reflect uncertainty.In the future, structural reform and policy coordination will be the key to addressing these challenges.
By continuously monitoring fiscal data, tariff effects and monetary policy dynamics, the United States is expected to find a balance in a complex environment and maintain economic stability and growth.
