Since new tariffs (fees charged on imported goods) were announced last year, global trade has been a major source of uncertainty for financial markets and the broader economy. In February, the Supreme Court ruled that the original "Liberation Day" tariffs were illegal, leading to a wave of refunds to businesses that are now being paid out.1 New tariffs have since been put in place under different laws, including recently with close trading partners such as Canada.
At the same time, these tariff refunds have increased the federal budget deficit (the gap between what the government spends and what it collects), pushing the national debt above $40 trillion for the first time ever and raising questions about how much it will cost the government to borrow money in the long run.2
While some investors have real concerns about these developments, the effect on investment portfolios has been limited. In fact, markets have done well during this period, with broad market indexes reaching new all-time highs. This is a good reminder of why it is important to keep these events in perspective. Throughout history, markets have performed well across many different trade and fiscal (government spending and tax) environments. So what do investors need to know about the latest events?
Tariff refunds are being returned to businesses
When the Supreme Court ruled in February that billions of dollars in tariffs collected under the International Emergency Economic Powers Act (IEEPA) had been unlawfully charged, markets generally reacted in a positive way. This is because tariffs are typically seen as an added cost for consumers and businesses, so reversing them was expected to benefit the overall economy.
Since then, companies that had paid those tariffs became eligible to receive refunds, which are currently being paid out. According to U.S. Customs and Border Protection, $129 billion in refund claims had been accepted for processing, which represents a large portion of the total amount owed.3 Data from the Treasury Department shows that tariff refunds have been larger than new tariff collections since May, meaning the government has been paying out more than it has been taking in for three months in a row.4
For example, June saw the single largest monthly amount of refunded tariffs ever recorded, with $49.2 billion returned to businesses compared to $23.6 billion collected. With roughly 40% of total refunds still to be processed, the government is likely to continue paying out more than it collects in the months ahead.
On one hand, these refunds could act like a boost to the economy by supporting company finances and encouraging investment. However, it is important to remember that these businesses originally paid this money in the first place. So while markets may view the refunds positively, they are largely a one-time event. They do not represent a lasting improvement in how well businesses are doing, and they simply reverse last year's tariff payments. In addition, many companies are still paying tariffs under different laws.
One worry for everyday consumers was that tariffs would push prices higher (a concept called inflation). However, this did not happen to the degree many expected, as many retailers chose to absorb the extra costs or pass them on in less direct ways. This is one reason tariffs did not hurt consumer spending as much as some had feared. It also makes it difficult to trace exactly how refunds will make their way back to households. For example, some shipping companies have begun returning refunds to customers who paid tariff surcharges directly, while some larger retailers have pledged to pass savings on through lower prices rather than direct payments.
Tariff refunds have added to the deficit and the national debt
Tariff refunds have also reversed the boost that tariffs previously gave to government revenues. The current annual deficit already stands at approximately $1.8 trillion, even though the fiscal year (the government's official budget year) does not end until September, and this already surpasses the full-year 2025 deficit.5 The Congressional Budget Office, which is a nonpartisan government agency that analyzes the budget, recently projected the full-year deficit will reach $2.1 trillion, roughly $200 billion more than was estimated earlier in the year.6
This means the national debt now exceeds $40 trillion for the first time in history. This figure has grown steadily over many decades as each year's deficit adds to the total. The accompanying chart shows this long-term trend, with each year's deficit building on the last. Tariff refunds are contributing to the deficit in the short term, but it is important to keep in mind that tariffs alone cannot close the budget deficit. Larger and more complex issues, such as programs like Social Security and Medicare, are much bigger drivers of the deficit and are difficult to address.
While many investors are understandably concerned about the national debt, history shows that it is important to separate these concerns from how we invest and plan for our financial futures. Since 1970, the federal government has run a deficit in all but five years, with the only four surpluses occurring in the past thirty years. And yet, balanced investment portfolios have performed well over this same period. In fact, the deficit is often at its highest during difficult periods for markets and the economy, which can coincide with market bottoms (the lowest point before a recovery). So, while the past is no guarantee of the future, and the size of the national debt does create challenges, making investment decisions based on the debt level alone has historically not worked well for investors.
The government is taking steps to manage borrowing costs
Another consequence of rising debt is its effect on interest rates and how much it costs the government to borrow money. Long-term interest rates have climbed to their highest levels in several decades recently. This matters because when the rates (called yields) on 10-year and 30-year U.S. Treasury bonds rise, borrowing becomes more expensive for businesses and households as well.
To help manage this, the Treasury Department has increased the size of its buybacks of U.S. Treasury securities (meaning the government buys back its own debt), which helps keep interest rates from rising too much.7 Other Treasury activities, such as actions to support the Japanese Yen (Japan's currency), may seem unrelated, but these too are intended to prevent governments like Japan's from selling large amounts of Treasury securities, which could push interest rates higher. That said, these efforts are small compared to the overall size of the Treasury market.
The accompanying chart puts today's interest rates in a longer historical context. Rates today are high compared to the past two decades, especially when compared to the period when the Federal Reserve (the U.S. central bank) kept rates near zero for many years. However, looking further back in history, today's rates are not extreme. In fact, higher rates also mean that investors now have more opportunities to earn income from bonds in their portfolios.
Concerns about tariffs, the national debt, and interest rates may continue to grow as we approach the midterm elections in November. Investors should be careful not to let headlines drive their portfolio decisions. History shows that markets have navigated many periods of trade and fiscal uncertainty, and that investors who kept a longer-term perspective were better positioned to reach their financial goals.
The bottom line? Tariff refunds and rising deficits are creating near-term fiscal challenges, but it's important to keep these developments in perspective. Maintaining a balanced portfolio aligned with long-term financial goals remains the best way to navigate periods of fiscal uncertainty.
References
1. https://www.cbp.gov/trade/programs-administration/trade-remedies/ieepa-duty-refunds
2. https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
3. https://storage.courtlistener.com/recap/gov.uscourts.cit.17270/gov.uscourts.cit.17270.25.1.pdf#page=3
4. https://fiscaldata.treasury.gov/datasets/monthly-treasury-statement/receipts-of-the-u-s-government
5. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit
6. https://www.cbo.gov/system/files/2026-08/61983-2026-07-MBR.pdf
7. https://home.treasury.gov/news/press-releases/sb0607