CBO: Tariffs Imposed by Trump Could Harm U.S. Economy

CBO Warns of the Cost of "Deficit Reduction" from Tariffs

The U.S. Congressional Budget Office (CBO) stated in its latest analysis that the broad tariff plan proposed by the Trump administration could reduce the fiscal deficit by up to $2.8 trillion over the next decade but at the cost of slowing U.S. economic growth and increasing inflation. This analysis was publicly released through a letter to Democratic leaders in Congress and is seen as a systemic evaluation of the trade policy outlook under a second Trump term.

GDP Growth Rate to Decline, Inflation May Increase by 0.4 Percentage Points

The CBO, based on the tariff executive orders issued by Trump since early 2025, assumes they will be permanently implemented. It predicts that in 2025 and 2026, the average annual rate of inflation in the U.S. will rise by 0.4 percentage points, while the annual GDP growth rate will decline by 0.06 percentage points each year. By 2035, the cumulative impact would result in the U.S. real GDP level being 0.6 percentage points lower than previously predicted.

The CBO stated bluntly: "High tariffs will suppress investment and labor productivity, causing damage to inflation-adjusted economic output."

Consumer Purchasing Power Weakened, Household Finances Under Pressure

The report particularly noted that rising inflation will weaken the purchasing power of American households and businesses. Under the dual pressures of high prices and sluggish economic growth, U.S. residents' disposable income may face substantial shrinkage.

The CBO's analysis aligns with the budget model results from the University of Pennsylvania's Wharton School of Business, which predicted in an April report that Trump's tariffs could lead to a 6% contraction in GDP and a 5% decrease in wages in the long term.

Economic Policy Outlook Highly Uncertain

In addition to the direct impact on economic fundamentals, the CBO also expressed concern over the high uncertainty of Trump's tariff policies. The report pointed out that Trump's habit of announcing modifications or suspensions of tariff policies via social media is gradually undermining business confidence.

Additionally, judicial intervention is another factor affecting policy sustainability. Previously, a tariff policy enacted by Trump under the Emergency Powers Act was overturned by a federal court, although the government subsequently appealed and temporarily continued to impose tariffs.

Beyond Tariffs, the "Big and Beautiful" Act Also Increases the Deficit

In another analysis, the CBO also evaluated the Republican party’s "Big and Beautiful" budget proposal. The results indicate that this plan would instead increase the U.S. federal deficit by $2.4 trillion over ten years, in stark contrast to Trump's proposal to reduce the deficit through tariffs.

Such contradictory fiscal policy paths may further heighten market concerns: on one hand, trying to control debt through taxation, while on the other, significantly expanding expenditures, posing challenges to overall fiscal sustainability.

Is the "Cost" of Deficit Reduction Too High?

Combining the CBO's assessment with views from other independent models, Trump's tariff policy, despite short-term fiscal gains, could incur a "high cost" in the long term of slowing economic growth, rising inflation, and harming residents.

The uncertainty of the policy, legal challenges in implementation, and the actual impact on household and business operations lead to greater market divergence on the feasibility and pros and cons of this plan. With the election approaching, this issue is expected to become a focal point in political and capital markets.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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