Trump's tariffs would shrink U.S. economy, raise inflation despite cutting deficits, CBO says
The numbers were revealed in a letter sent to Democratic congressional leadership outlining how the Trump administration's plan to impose wide-ranging tariffs on countries around the world will affect American households.
Baked into the CBO analysis is a prediction that households would ultimately buy less from the countries hit with added 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.
Opinion: Tariff turmoil could continue for months. Here are five suggestions for what to do with your money
The budget office's model also 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.
Largely confirming what other economic models have predicted, the CBO's estimations show that the tradeoff for a US$2.8-trillion deficit reduction over 10 years would be an overall reduction in household wealth. In addition, the tariffs would shrink the economy, or reduce the rate of the 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 per cent and wages by 5 per cent.
A major caveat of the CBO's estimates is written into the report – its estimates 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 jacking up the tax rate on Chinese imports to 125 per cent.
Last week, he announced plans to hike the tariffs on steel and aluminum imports to a punishing 50 per cent, a move that's set to hammer businesses and likely push up prices for consumers even further. The 50 per cent 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 per cent in 2026.
A representative from the White House did not respond to an Associated Press request for comment
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Aid groups required to report losses The 156 reports of theft or losses of supplies reviewed by BHA were filed by UN agencies and other humanitarian groups working in Gaza as a condition of receiving U.S. aid funds. The second source familiar with the matter said that after receiving reports of U.S.-funded aid thefts or losses, USAID staff followed up with partner organizations to try to determine if there was Hamas involvement. Those organizations also would "redirect or pause" aid distributions if they learned that Hamas was in the vicinity, the source said. Aid organizations working in Gaza also are required to vet their personnel, sub-contractors and suppliers for ties to extremist groups before receiving U.S. funds, a condition that the State Department waived in approving $30 million US for GHF last month. 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WATCH | Family-run clans work to secure aid convoys in Gaza: Gaza clans come together to secure aid convoys 29 days ago Family-run clans take up arms to secure aid convoys amid ongoing chaos at distribution sites and around trucks. It is possible there were classified intelligence reports on Hamas aid thefts, but BHA staff lost access to classified systems in the dismantlement of USAID, said a slide. However, a source familiar with U.S. intelligence assessments told Reuters that they knew of no U.S. intelligence reports detailing Hamas aid diversions and that Washington was relying on Israeli reports. The BHA analysis found that the Israeli military "directly or indirectly caused" a total of 44 incidents in which U.S.-funded aid was lost or stolen. Those included the 11 attributed to direct Israeli military actions, such as airstrikes or orders to Palestinians to evacuate areas of the war-torn enclave. Losses indirectly attributed to Israeli military included cases where they compelled aid groups to use delivery routes with high risks of theft or looting, ignoring requests for alternative routes, the analysis said.
