Treasury pays back $49.2 billion in invalidated tariffs in a single month, flipping last June’s celebrated surplus into a $120 billion deficit, with less than half the refund bill settled and a new generation of duties queued up to replace the old ones
By the US Trade Desk, Peacock Tariff Consulting
WASHINGTON, July 14, 2026
For more than a year, the defining sound of American trade policy was the cash register. Tariff receipts climbed month after month, the administration celebrated revenue records, and customs duties briefly became the fastest growing line in the federal ledger. This week the register began running in reverse. The U.S. Treasury Department reported Monday that the federal government ran a $120 billion budget deficit in June, a stark turnaround from the $27 billion surplus posted in the same month last year, and the proximate cause was not entitlement spending or interest on the debt but tariff money going back out the door.
According to the Treasury’s monthly budget statement, U.S. Customs and Border Protection collected $23.6 billion in gross customs duties in June while the government paid out $49.2 billion in refunds, leaving customs operations a net drain on the Treasury of $25.6 billion for the month. As Reuters noted in its report on the figures, June is normally one of the strongest revenue months of the year because of quarterly estimated tax deadlines. Instead, total receipts fell $31 billion, or 6 percent, from a year earlier, to $496 billion.
The refunds flow from the Supreme Court’s ruling in February that President Donald Trump’s broadest global tariffs, imposed under the International Emergency Economic Powers Act, exceeded his legal authority. Payments began trickling out in May, when the Treasury returned roughly $22 billion. The June wave was more than double that, and by the Treasury’s own arithmetic the government has now handed back about $71 billion, some 42 percent of the roughly $166 billion in IEEPA duties that CBP collected and that are subject to refund claims.
For the first nine months of fiscal 2026 the deficit stands at $1.367 trillion, up $29 billion, or 2 percent, from the same point last year. Bloomberg reported that the June figures produced the first widening in the cumulative deficit since the fiscal year began in October, a milestone that underscores how quickly the fiscal benefits of the 2025 tariff campaign are being unwound. Receipts for the fiscal year to date are up 4 percent at $4.151 trillion, while outlays have risen 3 percent to $5.518 trillion.
From Windfall to Payback
The contrast with June 2025 could hardly be sharper. Twelve months ago, with the IEEPA tariffs still ramping up, the Treasury reported net customs collections of $26.6 billion for the month, pushing receipts above $100 billion in a fiscal year for the first time in the history of the customs line. Treasury Secretary Scott Bessent said at the time that the budget results showed the United States was “reaping the rewards” of the president’s tariff agenda, a quote that Reuters resurfaced this week as the same line item turned negative.
The headline June comparison flatters neither side of the ledger. The Treasury cautioned that June 2025 outlays were artificially reduced by $97 billion because of calendar shifts in benefit payments. But even on an adjusted basis, the June 2026 deficit was $53 billion, or 79 percent, larger than the prior year’s adjusted shortfall of $67 billion. Spending pressures continued on schedule: gross interest outlays on the public debt rose $41 billion, or 28 percent, to $185 billion for the month, partially offset by a $10 billion increase in interest received by federal trust funds, which climbed to $70 billion.
A Treasury official declined to comment to Reuters on the future path of tariff refunds, and that silence is itself informative. Roughly $95 billion of the potential refund pool remains unpaid, and the timing of the remaining outflows depends less on the Treasury than on the federal courts.
The Ruling That Rewired the Ledger
The February decision that set the refunds in motion was as consequential a trade ruling as the Supreme Court has issued in decades. In a 6 to 3 opinion handed down on February 20, the Court held that IEEPA, the 1977 emergency statute the White House had used to impose country-by-country “reciprocal” tariffs and fentanyl-related duties beginning in early 2025, does not grant the president the power to unilaterally impose tariffs of indefinite scope. The decision did not order immediate refunds, but by declaring the collections unlawful it opened the door to claims from importers, who generally have 180 days after their entries are liquidated to protest and request their money back from CBP.
The sums involved are enormous. The Penn Wharton Budget Model estimated shortly after the ruling that reversing the IEEPA tariffs would generate up to $175 billion in refunds, and calculated that IEEPA duties had come to represent roughly half of all customs collections by early 2026, flowing into the Treasury at a rate of about $500 million per day. Unless replaced by another source, the model warned, future tariff revenue would fall by about half. That warning is now playing out in the monthly budget statements.
A Slow-Motion Payout
The mechanics of getting the money back have proven contentious. CBP opened a refund process earlier this year covering the roughly $166 billion in affected duties, but only importers of record are eligible to file claims. That detail matters for the politics of the episode: households that ultimately paid higher prices during the tariff period will see nothing directly, and as Benzinga observed in its coverage of the June figures, most refunds are expected to remain with companies rather than flow back to consumers.
The pace of payment is also tangled in litigation. The administration has appealed a lower court order that expanded refund eligibility beyond the companies that originally challenged the tariffs to all affected importers, an appeal that seeks to narrow who can reclaim the invalidated duties. The federal judge overseeing the refund order has publicly warned that the government’s appeal is delaying payments. Until the appellate courts resolve the question, billions of dollars in claims sit in a queue whose length no importer can reliably predict.
For companies that paid IEEPA duties, the practical stakes are straightforward. Refunds received in 2026 arrive as a windfall against costs that were absorbed, passed through, or hedged in 2025. Chief financial officers are treating the recoveries as one-time items, but for import-heavy sectors such as retail, consumer electronics, and automotive parts, the sums are large enough to move quarterly earnings. The unevenness of the process, with some importers paid in May and others still waiting for liquidations to be processed, has created a lottery-like quality that trade counsel say is driving a surge in protest filings ahead of statutory deadlines.
Washington’s Revenue Problem
Strikingly, even after the refund flood, customs receipts for the fiscal year to date stand at $163 billion net of refunds, well above the $108 billion collected in the same period of fiscal 2025. That is because the IEEPA duties collected before the February ruling were only part of a larger tariff architecture that has continued to operate around them. But the remaining pillars of that architecture are themselves shifting, and the next two weeks will decide much of what the tariff ledger looks like for the rest of the year.
The most immediate change is the expiration of the 10 percent global import surcharge the president imposed under Section 122 of the Trade Act of 1974 after the Supreme Court struck down the IEEPA duties. Section 122, a balance-of-payments authority, caps any surcharge at 150 days unless Congress affirmatively extends it. The clock runs out at 12:01 a.m. on July 24, and no extension legislation is pending, meaning the surcharge terminates by operation of law. The measure has its own legal cloud: the Court of International Trade held it unlawful in May in State of Oregon v. United States, but the Federal Circuit stayed that ruling pending appeal, so CBP has continued collecting the duty and will do so through July 23. As trade law firm Nakachi Eckhardt and Jacobson noted in a client advisory, the sunset extinguishes the surcharge prospectively but does not refund what has been collected; the fate of those duties rides on the appeal, raising the possibility of a second refund wave behind the IEEPA payouts.
The Replacement Wave
The administration has made little secret of its intention to rebuild the tariff wall under different statutes before the old one finishes crumbling. Reuters noted in its budget coverage that new duties are being prepared over what the administration characterizes as lax foreign enforcement of anti-forced-labor laws and excess industrial capacity, both the subject of Section 301 investigations launched in March.
The forced labor track is the furthest advanced. On June 2 the Office of the U.S. Trade Representative determined that the failure of 60 economies, including most major U.S. trading partners, to impose and enforce prohibitions on the importation of goods made with forced labor is actionable under Section 301. USTR proposed a two-tier remedy: an additional 10 percent duty on imports from economies that maintain some form of forced labor import prohibition, and 12.5 percent for those without such laws. Written comments closed on July 6, hearings ran on July 7 and 8, and trade counsel widely expect the agency to finalize action before the Section 122 surcharge lapses, stitching the new duties into place as the old ones fall away.
A separate Section 232 action will hit one sector far harder. Duties of 100 percent on patented pharmaceuticals and active pharmaceutical ingredients take effect on July 31 for larger companies and on September 29 for others. Unlike Section 122, the Section 301 and Section 232 authorities carry no statutory rate ceiling and no automatic expiration, which is precisely why the administration has migrated its tariff program toward them following the IEEPA defeat.
Voices From the Hearing Room
The July hearings on the forced labor tariffs previewed the fights to come. According to accounts of the testimony published by Nakachi Eckhardt and Jacobson, witnesses split sharply over both the evidence and the remedy. Jonathan Gold of the National Retail Federation, appearing for the Forced Labor Working Group, warned that the proposed duties could function as “a permanent tax” because the proposal contains no defined enforcement standard a country could meet to have the tariffs lifted, and he urged USTR to preserve existing apparel carve-outs under the USMCA and CAFTA-DR agreements. Martina Vandenberg of the Coalition Against Forced Labor in Trade made a related point from the opposite direction, noting that while she supports import bans, the action as drafted offers countries no clear pathway to tariff removal through improved enforcement.
Foreign governments contested the evidentiary basis outright. Kazakhstan’s trade remedies official, Yerkebulan Abdrassil, argued that his country’s exports impose no meaningful burden on U.S. commerce. India’s commerce ministry joint secretary, Brij Mohan, contended that the investigation departs from prior Section 301 practice by omitting sector-specific evidence, and characterized a proposed duty credit for apparel made with U.S. inputs as protectionism dressed as labor policy. Officials and representatives from Pakistan, Mexico, and Honduras raised similar objections about specificity and regional supply chain damage.
Others pushed the other way. Li Qiang, founder of China Labor Watch, recommended a 50 percent rate on Chinese goods, and Nguyen Thang of Boat People SOS urged rates of 35 to 50 percent on Vietnamese electronics, machinery, footwear, agriculture, rubber, and timber, citing systemic labor abuses and the use of forced-labor inputs imported from elsewhere. The gap between a 10 percent baseline and a 50 percent demand illustrates how much discretion USTR retains as it writes the final action.
The Politics of Paying It Back
On Capitol Hill, the refund figures landed in the middle of an already heated argument over who controls tariff policy. Lawmakers skeptical of the administration’s use of emergency and balance-of-payments authorities have pointed to the June statement as evidence of the fiscal risk of building revenue projections on contested legal ground, and legislation aimed at reclaiming congressional authority over tariffs has been gathering cosponsors rather than losing them. That dynamic matters for the Section 122 question directly: the statute allows Congress to extend the surcharge past 150 days, but with no extension bill pending and the political momentum running toward restraint, the July 24 sunset is treated on both sides of the aisle as a foregone conclusion.
The administration, for its part, has framed the deficit widening as a transitory artifact of court-ordered payments rather than a verdict on the tariff program itself, and analysts broadly agree that the refund drag will fade as the claims pool empties. The larger fiscal question is what fills the hole afterward. Customs duties were projected to contribute a meaningful offset to the cost of last year’s tax legislation, and every month of litigation delay on the replacement tariffs widens the gap between what was promised and what is collected.
What It Means for the Economy
The June deficit is best understood as a one-time accounting reckoning layered on top of a structural fiscal problem. The refund outflows are temporary by nature; once the $166 billion pool is exhausted, the drag disappears. But the episode exposes how dependent the 2025 improvement in the deficit was on revenue that the courts have now clawed back, and how quickly the political narrative built on that revenue has had to be revised. A budget line that was cited as proof the tariff agenda was paying for itself is now, for at least a few months, running negative.
The forward-looking question is whether replacement revenue arrives before the old revenue finishes draining away. If USTR finalizes the forced labor duties at 10 to 12.5 percent across most major trading partners, customs collections will rebuild quickly, though from a lower base than the IEEPA regime because the rates are lower and the exclusions broader. The economic incidence, however, will look familiar. Mainstream analyses of the 2025 tariffs found that the cost fell overwhelmingly on U.S. importers and, through pass-through, on consumers. A new 10 to 12.5 percent layer applied to most of the import base would restart that mechanism just as the refund windfall was compensating importers for the last round.
There is also a credibility cost that does not show up in the budget tables. In eighteen months, importers have watched duties imposed under IEEPA, struck down, partially refunded, replaced by a Section 122 surcharge, litigated again, and now scheduled for replacement by Section 301 and Section 232 measures that will themselves be challenged. Each rotation of authority forces companies to reprice contracts, rebook freight, and refile entries. Uncertainty of that kind operates like a tariff of its own, and no court can refund it.
What Importers Should Do Now
For trade compliance teams, the June budget statement is less a news event than a to-do list. The first priority is perfecting refund claims. Importers who paid IEEPA duties should confirm that every affected entry has been identified, monitor liquidation dates closely, and calendar the 180-day protest deadlines that follow liquidation. With the eligibility appeal unresolved, counsel broadly advise filing protective claims now rather than waiting for the courts to define the class of eligible claimants.
The second priority is the July 24 boundary. Entries made on or after that date will not owe the Section 122 surcharge, which creates a genuine, if brief, timing opportunity for goods already on the water. Importers should not, however, assume that surcharge payments made during the 150-day window will come back; those funds are hostage to the Oregon appeal, and prudent planning treats them as sunk until the Federal Circuit says otherwise.
Third, sourcing teams should model Section 301 exposure now, before the final action publishes. The two-tier structure means the applicable rate turns on whether the country of origin maintains a forced labor import prohibition, a legal fact many procurement organizations have never had to track. Companies relying on USMCA or CAFTA-DR apparel preferences should watch whether the carve-outs survive the final notice. Pharmaceutical importers face the hardest deadline of all, with 100 percent Section 232 duties arriving July 31 for larger firms.
Exporters have their own exposure to monitor. The breadth of the proposed Section 301 action, reaching 60 economies at once, gives dozens of governments a shared grievance and a shared incentive to coordinate their responses. Several of the countries that testified against the forced labor tariffs are significant buyers of U.S. agricultural goods, aircraft, and energy, and the pattern of the last eighteen months suggests that retaliation lists tend to be drafted quickly and aimed at politically sensitive American exports. U.S. exporters who came through the 2025 retaliation cycles should assume their products remain on file in foreign capitals and build that risk into pricing and market diversification decisions for the second half of the year.
Finally, the episode is a reminder that contract language is the cheapest tariff insurance available. Allocation clauses that specify which party bears new duties, refund-sharing provisions that anticipate clawbacks, and renewed attention to duty drawback, first sale valuation, and foreign trade zones all convert legal chaos into manageable line items.
The Bottom Line
The $120 billion June deficit will be revised, argued over, and eventually forgotten. What will persist is the precedent: the largest tariff program in modern American history was found unlawful, and the bill for unwinding it is being paid in public, month by month, in the Treasury’s own statements. With $95 billion in claims still outstanding, a global surcharge expiring in ten days, and a successor tariff regime racing through its final procedural steps, the refund flood is not the end of the story. It is the receipt for the first chapter, arriving just as the second one begins.