CBO Analysis: Trumps Tariff Plan to Cut Deficits by $2.8 Trillion, Shrink Economy, Raise Inflation

WASHINGTON (AP) — President Donald Trump’s sweeping tariff plan would cut deficits by $2.8 trillion over a 10-year period while shrinking the economy, raising the inflation rate, and reducing the purchasing power of households overall, according to an analysis released by the Congressional Budget Office.

The analysis, detailed in a letter to Democratic congressional leadership, outlines the impact of the Trump administration’s plan to impose wide-ranging tariffs on countries worldwide. The CBO predicts that households would buy less from countries affected by the tariffs. The budget office estimates that the tariffs would increase the average annual rate of inflation by 0.4 percentage points in 2025 and 2026.

The CBO’s model assumes that the tariffs, announced through executive action between January and May, will be in place permanently. Since the analysis was conducted, a federal court struck down sweeping tariffs that Trump invoked under an emergency-powers law. An appeals court allowed the Trump administration to continue collecting the tariffs while the case goes through appeals.

Confirming other economic models, the CBO’s estimations show that the tradeoff for a $2.8 trillion deficit reduction over 10 years would be an overall reduction in household wealth. Additionally, the tariffs would shrink the economy, reducing the rate of gross domestic product by 0.06 percentage points per year.

The Penn-Wharton Budget Model’s April report predicted that the Republican president’s tariffs would reduce long-run GDP by about 6% and wages by 5%. A major caveat of the CBO’s estimates is that they are “subject to significant uncertainty, in part because the Administration could change how the tariff policies are administered.”

Trump has often announced changes and pauses to his tariff plans on his social media platform. In April, he posted that he was backing off his tariffs on most nations for 90 days and increasing the tax rate on Chinese imports to 125%. Last week, he announced plans to hike the tariffs on steel and aluminum imports to a punishing 50%, a move that’s set to impact businesses and likely push up prices for consumers even further. The 50% tariffs went into effect Wednesday.

The Organization for Economic Cooperation and Development forecast Tuesday that the U.S. economy, the world’s largest, will slow growth to just 1.5% in 2026. A representative from the White House did not respond to an Associated Press request for comment.

Associated Press writer Paul Wiseman in Washington contributed to this report.