Trump's tariffs would cut US deficits by $2.8T over 10 years and shrink
the economy, CBO says
[June 05, 2025] By
FATIMA HUSSEIN
WASHINGTON (AP) — President Donald Trump’s sweeping tariff plan would
cut deficits by $2.8 trillion over a 10-year period while shrinking the
economy, raising the inflation rate and reducing the purchasing power of
households overall, according to an analysis released Wednesday by the
Congressional Budget Office.
The numbers were revealed in a letter sent to Democratic congressional
leadership outlining how the Trump administration’s plan to impose
wide-ranging tariffs on countries around the world will affect American
households.
Baked into the CBO analysis is a prediction that households would
ultimately buy less from the countries hit with added tariffs. The
budget office estimates that the tariffs would increase the average
annual rate of inflation by 0.4 percentage points in 2025 and 2026.
The budget office’s model also assumes that the tariffs, announced
through executive action between January and May, will be in place
permanently.
Since the analysis was conducted, a federal court struck down sweeping
tariffs that Trump invoked under an emergency-powers law. An appeals
court allowed the Trump administration to continue collecting the
tariffs while the case goes through appeals.
Largely confirming what other economic models have predicted, the CBO's
estimations show that the tradeoff for a $2.8 trillion deficit reduction
over 10 years would be an overall reduction in household wealth. In
addition, the tariffs would shrink the economy, or reduce the rate of
the gross domestic product by 0.06 percentage points per year.
The Penn-Wharton Budget Model's April report predicted that the
Republican president’s tariffs would reduce long-run GDP by about 6% and
wages by 5%.
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President Donald Trump speaks to reporters in the Oval Office of the
White House, Friday, May 23, 2025, in Washington. (AP Photo/Evan
Vucci, File)
 A major caveat of the CBO's
estimates is written into the report — its estimates are “subject to
significant uncertainty, in part because the Administration could
change how the tariff policies are administered.”
Trump has often announced changes and pauses to his tariff plans on
his social media platform.
In April, he posted that he was backing off his tariffs on most
nations for 90 days and jacking up the tax rate on Chinese imports
to 125%.
Last week, he announced plans to hike the tariffs on steel and
aluminum imports to a punishing 50%, a move that’s set to hammer
businesses and likely push up prices for consumers even further. The
50% tariffs went into effect Wednesday.
The Organization for Economic Cooperation and Development forecast
Tuesday that the U.S. economy, the world’s largest, will slow growth
to just 1.5% in 2026.
A representative from the White House did not respond to an
Associated Press request for comment
___
Associated Press writer Paul Wiseman in Washington contributed to
this report.
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