President Trump’s increased tariffs will decrease U.S. government deficits by $4 trillion through 2035, according to newly revised projections by the Congressional Budget Office.
Phill Swagel, director of the nonpartisan budget scorekeeper, said in a blog post Friday that, as of this week, the estimated effective tariff rate for goods imported into the United States has risen by about 18 percentage points compared to 2024. CBO expects customs duties from new and existing tariffs will total about $200 billion this fiscal year, barring further changes. The Trump-driven increase in tariff revenue will decrease deficits by $3.3 trillion, assuming the higher tariffs remain in place over the next decade. The reduced need for federal borrowing resulting from those lower deficits would cut interest costs by $700 billion, bringing the total deficit reduction to $4 trillion.
The new estimate is significantly higher than the $2.5 trillion in deficit reduction and $500 billion in interest savings that CBO projected in June, with the upward shift due to changes in tariffs.
At the same time, CBO says that the higher tariffs enacted by the United States and its trading partners “will reduce the size of the U.S. economy” in the longer term. “That reduction in output reflects both negative and positive effects: the negative effects of higher tariffs through channels such as reduced investment and productivity, and the positive effects of additional revenues from tariffs on U.S. imports, which would reduce federal borrowing and increase the funds available for private investment,” Swagel wrote.
Swagel also said that CBO’s estimates are subject to “significant uncertainty” because of potential changes in how tariffs are administered and the lack of empirical evidence about the long-term effects of such high import taxes and how consumers and businesses will respond.
In addition, Trump’s high current tariff rates may change as he and his administration negotiate new trade deals. They may also get wiped out by legal challenges. But if CBO’s projections were to become reality, the expected revenues from tariffs — which are largely paid by American businesses and consumers — would almost offset the expected cost of the big tax-and-spending-cuts bill Trump signed into law on July 4. CBO projected earlier this month that the GOP megabill will add $4.1 trillion to the deficit over 10 years, or $5 trillion if the new law’s temporary tax provisions are eventually made permanent.
Trump and the White House touted the CBO estimate, even as the president continued Republican criticisms of the budget scorekeeper. Trump posted on his social media site that “the Radical Left Representatives working at the Congressional Budget Office (CBO) have now admitted how incredible my Tariff strategy has been.”