Shipping containers at the Port of Los Angeles in February. (Kyle Grillot/Bloomberg)
key takeaways:
- Treasury data from July 13 showed that the US budget deficit for the first nine months of fiscal year 2026 rose 2% to $1.37 trillion, a $120 billion gap in June.
- The reversal followed a Supreme Court decision to slash Trump-era tariffs that led to $49.2 billion in refunds in June and cut into customs revenues, analysts said.
- Refund-driven deficit pressure is expected to be temporary as new tariff actions and investigations can rebuild revenues, while spending on entitlements and loan interest increases.
The US federal budget deficit increased for the first time since the beginning of this fiscal year due to a huge wave of refund payments for tariff increases declared illegal by the Supreme Court.
The gap was $1.37 trillion for the first nine months of fiscal 2026, the Treasury Department data Shown on 13 July. This represents a 2% increase in the gap compared to 2025. For the month of June, the total deficit was $120 billion.
In previous months, the deficit had been narrowing, particularly due to rising revenues – higher tax receipts amid solid job and economic growth, and higher customs revenues due to President Donald Trump’s tariff hikes. But the Supreme Court struck down most of its levies in February and refunds have increased in recent weeks.
Connected: Tariff check may hit earnings in second half
Treasury data shows a net decline of $25.6 billion in customs duties for June, following a net loss of $42 million in May. Refunds jumped to $49.2 billion in June after nearly $22 billion in May — more than half of the total estimated $166 billion the government is estimated to have to pay back.
“The refund program this year has become large enough to be macroeconomic, fiscal and market-significant,” Evercore ISI analysts including Matthew Acks wrote in a note on July 10. Still, the payments “represent a temporary increase in the deficit,” the team wrote, noting that the Trump administration is in the process of building a new tariff wall.
Among ongoing efforts, the Office of the U.S. Trade Representative is investigating nearly 60 countries for violations of forced labor sanctions, which could later be used as a basis to increase tariffs. Evercore ISI believes tariff revenues will ultimately exceed $300 billion annually.
Meanwhile, the widening budget gap risks reminding bond investors of the sheer scale of US borrowing. Data through July 13 showed total spending rose 3% so far for the fiscal year — driven by larger outlays on Social Security, Medicare, Medicaid and interest payments on the debt.
