Trump Tariffs Will Shrink Economy and Increase Inflation Per Damning CBO Report
AP Photo/Mary Altaffer
President Donald Trump’s controversial tariffs will hurt the size of the U.S. economy and cause rising inflation, according to a just-published report from the nonpartisan Congressional Budget Office.
While the White House deals with unexpected blowback from political allies like Elon Musk and Senators Rand Paul and Ron Johnson over a massive spending bill that the CBO said would increase federal debt by a whopping $2.4 trillion, there is another portion of the report that paints Trump’s draconian tariff policy in a much darker light.
The CBO estimates that the changes in tariffs will “reduce the size of the U.S. economy,” as well as “increase inflation by 0.4 percentage points.” The good news for the Trump administration, however, is that the report also estimates that changes in tariffs ” will reduce total federal deficits by $2.8 trillion.”
The report states:
• In CBO’s assessment, the changes in tariffs will reduce the size of the U.S. economy—in part because of tariffs imposed by other countries in response to the increases in U.S. tariffs. After accounting for that change in the size of the economy, CBO estimates that the changes in tariffs will reduce total federal deficits by $2.8 trillion.
• Reductions in investment and productivity stemming from higher tariffs will be partially offset by increases in resources available for private investment resulting from the reduction in federal borrowing.
CBO estimates that, on net, real (inflation-adjusted) economic output in the United States will fall as a result.
• Inflation will increase by an annual average of 0.4 percentage points in 2025 and 2026, in CBO’s estimation, reducing the purchasing power of households and businesses.
The CBO was established in 1974 under the Congressional Budget and Impoundment Control Act to give Congress independent, objective budgetary and economic analyses.
There is some irony in these findings as Republican leaders and President Trump have dismissed the deficit spending findings of the CBO, insisting that it does not account for a growing economy that would come as a result of massive tax cuts, particularly for upper or wealthier tax brackets.
The CBO actually finds that the tariff policy would negate the increased deficit estimate from the spending bill, but would come at the expense of a shrinking economy and higher prices.
