 Tariffs Likely to Lower Income and GDP but Improve Budget Deficit, CBO Says |
Source |
American Shipper |
Post Date |
06/17/2025 |
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In a June 4 report to Congress, the Congressional Budget Office offered the followingestimates of the budgetary and economic effects over the next ten years ofincreases in tariffs implemented through utive action between Jan. 6 andMay 13, 2025. (This report was issued prior to court decisions striking downsome of these tariffs, which nevertheless remain in effect at present, and thedoubling of Section 232 tariffs on imports of steel and aluminum and derivativeproducts.)
Budget deficit. Tariff collections willdecrease primary U.S. budget deficits by $2.8 trillion. This estimate accountsfor how flows of U.S. imports and exports would adjust in response to tariffsas well as an estimated reduction in the size of the U.S. economy attribuin part to the retaliatory tariffs imposed by other countries.
The CBO said this estimatereflects an assumption that tariffs will be collected on all affected imports,with no exemptions beyond those currently specified. However, there is alsosome uncertainty regarding potential changes to how tariff policies are administeredas well as how businesses and consumers may respond to such changes.
GDP. By 2035 the level ofreal gross domestic product will be 0.6 percent lower than the CBO? January2025 fore. This reduction reflects both the negative effects of highertariffs and frequent tariff changes, including reduced investment and productivity,as well as the positive effects of additional revenues from tariffs, whichwould reduce federal borrowing and increase the funds available for privateinvestment.
Inflation. Inflation will increaseby an annual average of 0.4 percentage points in 2025 and 2026, but thereafter?he tariffs will not have additional significant effects on prices.?
Workers and consumers. Tariff increases willreduce average real income by decreasing aggregate output and raising pricesfor households in all income groups. Industries that produce goods that competewith imports will probably expand, whereas industries that chiefly produceexports or source a large share of their production inputs from abroad willprobably contract. The tariffs will increase the prices of goods more than theprices of services, which will have a disproportionate impact on households atthe lower of the income distribution. However, the tariffs will alsoproduce the largest price increases for durable goods such as householdappliances and motor vehicles, which account for a larger share of totalconsumption for households at the higher .
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