Trump tariffs would cut deficits but hike consumer prices, CBO says

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Source: Axios

5 hours ago


The Congressional Budget Office estimates sky-high tariffs promised by President-elect Trump might improve the nation's fiscal outlook — but at the cost of higher inflation and slower economic growth than would otherwise be the case.

Why it matters: The nonpartisan agency's findings are the highest-profile estimates yet of how such trade policy could slam consumers, businesses and the broader economy.

The big picture: The CBO's estimates, released in a letter to lawmakers on Wednesday, came at the request of Senate Majority Leader Chuck Schumer (D, N.Y.), budget committee chair Sen. Sheldon Whitehouse (D, R.I.), and Oregon Sen. Ron Wyden, who leads the finance committee.

The lawmakers asked the CBO to look at a range of scenarios, including the combined economic and budget effects of a permanent 60% tariff on all Chinese imports, and a 10% tariff on all other goods imported into the country — the same trade policies promised by Trump.

The estimates assume other nations slap retaliatory tariffs of the same magnitude on U.S. exports.

By the numbers: The CBO estimates tariffs would spur price hikes on consumer goods, at least initially.

Higher tariffs on Chinese goods and all other U.S. imports would increase the Personal Consumption Expenditures index, a gauge of inflation, by a full point by 2026 — a notable risk as the Federal Reserve is trying to keep inflation at bay.

After 2026, however, the CBO says that the tariffs would not have any "additional significant effects on prices."

The CBO also said that poorer households would experience the largest drop in purchasing power, given that cohort spends the largest chunk of their income on goods.

Read more: https://www.axios.com/2024/12/18/trump-tariffs-budget-inflation

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