Congressional Budget Office sees lower deficits from tariffs, but with big caveats

Olivia M. Bridges, CQ-Roll Call on Jun 4, 2025

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WASHINGTON — The Congressional Budget Office on Wednesday said that President Donald Trump’s tariffs will shrink the U.S. economy and increase inflation, but that they could reduce the deficit by as much as $3 trillion over 10 years.

The CBO estimated the increase in revenue collection from tariffs would reduce the deficit by $2.5 trillion from fiscal 2025 to fiscal 2035, measured against baseline projections made in January. The smaller deficits would deliver another $500 billion in savings on interest payments, it said, noting the estimates were before accounting for tariffs’ impact on the economy.

In a letter to Senate Minority Leader Charles E. Schumer, D-N.Y., Senate Budget ranking member Jeff Merkley, D-Ore., and Senate Finance ranking member Ron Wyden, D-Ore., the CBO looked at executive actions on tariffs from Jan. 6 through May 13.

The CBO noted that the analysis came before federal court decisions on tariffs last week and doesn’t account for potential changes to tariff policy. The U.S. Court of International Trade last week threw out a swath of tariffs, but its decision was stayed temporarily within a day on appeal. The analysis also doesn’t reflect any trade agreements.

“CBO’s estimates are subject to significant uncertainty, in part because the Administration could change how the tariff policies are administered,” it said. “The projections described here reflect the assumption that the tariffs will be collected on all affected imports, with no exemptions beyond those currently specified.”

Members of both parties have raised alarm about the tariffs’ possible impact on consumers. The CBO said the tariffs will reduce the rate of real growth in gross domestic product by 0.06 percentage points per year through fiscal 2035 and increase inflation by 0.4 percentage points in 2025 and 2026.

The CBO estimate said the tariffs would reduce deficits by $2.8 trillion from fiscal 2025 to fiscal 2035 when that economic impact is built into the calculation. The economic effect of the tariffs would add about $300 billion to the deficit over the decade.

The GDP reduction reflects the negative effects of higher tariffs through channels such as reduced investment and productivity, and the positive effects of additional revenue from tariffs, which would reduce federal borrowing and increase the funds available for private investment, it said.

The report accounted for the following: a 30% tariff increase on China, 25% automotive and auto parts tariffs, 10% baseline tariff on most countries, 25% steel and aluminum tariffs and 25% tariff on goods from Canada and Mexico that aren’t compliant with the U.S.-Mexico-Canada Agreement on trade.

Trump signed a presidential proclamation Tuesday increasing the steel and aluminum tariffs to 50%, effective Wednesday.

The CBO said that its next economic forecast will reflect the effects of retaliatory tariffs imposed by trading partners.

“In CBO’s assessment, additional retaliatory tariffs are likely, and U.S. trading partners are probably waiting for negotiations to play out before retaliating fully. Even so, the value of U.S. exports targeted by those tariffs is expected to be lower than the value of imports targeted by U.S. tariffs,” it says.