CBO Report: Tariffs to Reduce Federal Deficits by $2.8 Trillion

CBO Analysis of Tariffs

• 🎯 The Congressional Budget Office (CBO) has released an analysis on the economic effects of President Trump's tariffs, conducted before recent court rulings but after the China trade truce.
• 📈 The analysis assumes China tariffs are at 30% and other existing tariffs are in place.

Economic Impacts of Tariffs

• ⚠️ CBO projects that inflation will increase by an average of 0.4 percentage points in each of the next two years (2025 and 2026).
• 📉 On net, inflation-adjusted economic output is expected to fall, with tariffs and retaliatory measures reducing the size of the US economy.
• 🛍️ The increased inflation is expected to reduce the purchasing power of households and businesses.

Deficit Reduction Projections

• 💰 The primary finding is that tariffs will reduce total federal deficits by $2.8 trillion over the next decade.
• 🏦 This deficit reduction is attributed to increased tariff collections and reduced federal spending on interest, stemming from a smaller US economy.
• ⚖️ These deficit reduction figures are separate from the estimated $2.4 trillion cost of another proposed bill, nearly canceling each other out in terms of fiscal impact.

Tariff Rate Details

• 🇨🇳 While the average tariff rate is not specified, the analysis reflects China tariffs at 30%, not a higher 145%.
• ⏸️ Most reciprocal tariffs are on pause, except for a 10% baseline, with the analysis incorporating measures in place as of May 13th.