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 Wednesday by the Congressional Budget Office.
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.
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 $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.
Bicycles are displayed at a Walmart, Wednesday, April 16, 2025, in Groton, Conn. (AP Photo/Julia Demaree Nikhinson, File)
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 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%.
Last week, he announced plans to hike the tariffs on steel and aluminum imports to a punishing 50%, a move that’s set to hammer businesses and likely push up prices for consumers even further. The 50% tariffs went into effect Wednesday.
Empty shopping carts are collected from the parking lot at Walmart store in Burbank, Calif., on Thursday, April 10, 2025. (AP Photo/Damian Dovarganes, File)
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.
