US: CBO Determines Tariffs Would Shrink Deficits And Economy, Increase Inflation

The Congressional Budget Office has noted in a letter to Senate Democrats that tariffs enacted by President Donald Trump would reduce deficits, reduce the size of the economy, and increase inflation.

• The CBO "estimates that the increase in collections of tariffs would reduce primary deficits by $2.5 trillion. That estimate accounts for how flows of U.S. imports and exports would adjust in response to the tariffs imposed as of May 13, 2025."
• The letter notes: "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."
• The letter adds: "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 estimate of tariff revenue is slightly larger than it's projected deficit increase of USD$2.4 trillion from the 'One Big Beautiful Bill' released earlier today. See CBO Determines House-Passed 'Big Beautiful Bill' Would Add $2.4T To Deficit
• Erica York at Tax Foundation notes on X: "CBO's estimates align closely with [TaxFoundation]'s. ... We estimate revenue would rise by $2.1 trillion from CY2025 through CY2034 and GDP would drop by 0.6%."