Trump’s tariffs to raise trillions in revenue, ease U.S. deficits – but at a big cost, CBO says

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U.S. President Donald Trump’s tariffs will raise trillions of dollars in new revenue for the United States and ease federal deficits, a formal evaluation by the Congressional Budget Office has found – but at a considerable cost to consumers and the country’s overall economic performance.

The tariffs will cut U.S. gross domestic product by 0.6 per cent over the next decade, the analysis found. It will raise the price of goods purchased in the country 0.9 per cent by 2026.

But it will trim federal deficits by US$2.8-trillion between 2025 and 2035, according to the estimate – a key selling point for Mr. Trump as he pushes for a bill that will slash other taxes.

The report, from an influential non-partisan government body, does not foretell an economic catastrophe from the raft of border measures Mr. Trump has imposed since taking office. He has raised average tariff levels to their highest in many decades. The analysis was completed before Mr. Trump doubled tariffs on aluminum and steel, which took effect Wednesday.

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It nonetheless offers a clear delineation of the costs that accompany his policies, further repudiating the President’s promises that his tariffs will come at no extra cost to people in the U.S.

“Trump is betraying the people who bought his lie that he would bring down prices,” budget committee ranking member Jeff Merkley said in a statement Wednesday. Mr. Merkley, a Democrat from Oregon, was among the U.S. senators who requested the tariff analysis.

Economists, too, have largely criticized Mr. Trump’s imposition of import taxes as economically inadvisable.

Raising government revenue through tariffs amounts to inefficient policy, a strategy “heavily weighted with negative tradeoffs,” said Erica York, vice-president of federal tax policy at the Tax Foundation, a non-partisan research group.

“This is a really bad decision,” she said. “It means that over the long term, we’re going to be less productive, we’re going to be less innovative and we’re going to be poorer than we otherwise would be.”

The analysis also suggests the tariff revenues are likely to be less than half what the White House has promised. In March, presidential trade adviser Peter Navarro said levies would raise an additional US$6-trillion.

Yet the confluence of the tariff analysis with the tax-cutting “One Big Beautiful Bill Act,” a budget bill, shows how Mr. Trump is pushing through an agenda he has long promised.

In January, shortly before his return to the White House, Mr. Trump promised tax cuts that will “all be made up with tariffs, and much more, from countries that have taken advantage of the U.S. for years.”

Foreign countries do not pay import taxes. U.S. consumers do.

Nonetheless, the budget bill is expected to raise federal deficits by US$2.4-trillion over the next decade – an amount that coincides with the US$2.8-trillion in expected deficit reductions from tariffs.

“Trump’s fair-trade policies shift the tax base away from income taxes alone to tariffs,” Mr. Navarro wrote this week on social media.

Still, much remains unknown. Mr. Trump has made numerous changes to tariff rates, while two U.S. courts have ruled that he has overstepped his presidential authority by claiming emergency powers to tax imports.

There is also no modern precedent for his actions, complicating the work of assessing their likely effects.

“Because the United States has implemented no increases in tariffs of this size in many decades, there is little relevant empirical evidence on their effects,” the CBO said. That means consumers could either react more strongly than expected – “which would cause revenues to be lower than CBO projects” – or the opposite may prove true.

Democrats have bitterly opposed the tariff strategy, with Senate Minority Leader Chuck Schumer saying Wednesday Mr. Trump’s “chaotic trade war drives up prices, hurts America’s economic stability, and creates mayhem for families and small businesses. Trump’s tariffs are nothing more than a tax on the American people.”

It is, however, difficult to discern who will shoulder the greatest burden. Tariffs are likely to hit hardest on the cost of goods, relative to services. That could disproportionately hurt lower-income Americans, for whom goods form a larger percentage of spending. However, the tariffs are expected to create the largest price hikes for goods such as appliances and cars that “account for a larger share of total consumption for households at the higher end of the income distribution,” the CBO report notes.

It also finds reason to expect that some of the country’s lowest income earners may be shielded from the worst effects of tariffs.

“Households that receive a larger share of their income from government means-tested transfers will be more protected from changes in prices because such transfers are indexed to inflation,” the report notes.