The Congressional Budget Office’s (CBO) preliminary report on the impact of tariffs on the U.S. economy forecasts large benefits to the federal budget from tariffs and a tiny consumer price increase, confirming recent forecasts published by the Coalition for a Prosperous America.
The CBO has released its preliminary analysis on the budgetary, economic, and distributional effects of a proposed tariff policy that includes an additional 60% tariff on imports from China and an additional 10% global tariff on imports from the rest of the world (a 10/60 tariff package).
CBO’s Preliminary Tariff Findings Show Large Revenue Gains
The CBO projects that even with the projected drop in imports, the proposed tariff policy would cut deficits by $2.7 trillion over the next decade, aligning closely with similar estimates from CPA. This substantial revenue benefit underscores the fiscal potential of the proposed measures.
Furthermore, the CBO forecasts minimal effects on prices and GDP. According to their preliminary findings, the 10/60 tariff package would lead to only a one-time 1% increase in prices. Further, CBO said that “after 2026, the tariffs would not have additional significant effects on prices.” This is a dramatic contrast with many economists’ claims of larger price effects. It aligns closely with comments by CPA chief economist Jeff Ferry, who told the Joint Economic Committee yesterday in a hearing on tariffs that a larger tariff package of 20% worldwide tariffs and 60% China tariffs would raise prices by a one-time 2.4% spread over several years.
On economic growth, the CBO estimated that the tariffs would have an insignificant impact on GDP, with a 0.6% reduction in GDP in 2034, compared to a no-tariff projection. To put this in real terms, U.S. real GDP grew by about 28.4% over the past 10 years (from January 2014 to January 2024). If the U.S. had similar growth over the next 10 years, the CBO’s projected -0.6% GDP impact from tariffs would reduce economic growth from 28.4% to 27.8%.
While these findings show that the alarmist claims about the negative effects of tariffs are extremely overblown, the CBO’s projected economic and distributional effects of tariffs are still overly pessimistic.
CBO Analysis Ignore Growth Effect of Tariffs
The CPA analysis has shown that a 10% tariff would generate GDP growth on the order of 2.86%, while creating 2.8 million jobs and raising the average household income by $4,258. CPA’s analysis is based on a modified, updated, and more realistic trade model.
In contrast, CBO’s analysis relies on the standard GTAP economic model, which is too rigid. Among other shortcomings, the standard model limits the growth of industries in response to reduced imports. The U.S. International Trade Commission’s (USITC) findings on the impact of tariffs on 12 sectors of the U.S. economy found that tariffs substantially boosted domestic production.
“The CBO summary of its forecast shows that claims of negative consequences of broad-based tariffs are grossly overblown,” said Ferry. “The CBO has not come all the way to our side, but it is nevertheless a partial confirmation of our view of the US economy. Broad-based tariffs will generate economic growth, create jobs, and raise household incomes, with only a very minor one-time increase in consumer prices. In today’s world, tariffs are an essential tool for the US economy.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
CBO Report Confirms CPA View that Tariffs Raise Trillions in Government Revenue and Benefit US Industries
The Congressional Budget Office’s (CBO) preliminary report on the impact of tariffs on the U.S. economy forecasts large benefits to the federal budget from tariffs and a tiny consumer price increase, confirming recent forecasts published by the Coalition for a Prosperous America.
The CBO has released its preliminary analysis on the budgetary, economic, and distributional effects of a proposed tariff policy that includes an additional 60% tariff on imports from China and an additional 10% global tariff on imports from the rest of the world (a 10/60 tariff package).
CBO’s Preliminary Tariff Findings Show Large Revenue Gains
The CBO projects that even with the projected drop in imports, the proposed tariff policy would cut deficits by $2.7 trillion over the next decade, aligning closely with similar estimates from CPA. This substantial revenue benefit underscores the fiscal potential of the proposed measures.
Furthermore, the CBO forecasts minimal effects on prices and GDP. According to their preliminary findings, the 10/60 tariff package would lead to only a one-time 1% increase in prices. Further, CBO said that “after 2026, the tariffs would not have additional significant effects on prices.” This is a dramatic contrast with many economists’ claims of larger price effects. It aligns closely with comments by CPA chief economist Jeff Ferry, who told the Joint Economic Committee yesterday in a hearing on tariffs that a larger tariff package of 20% worldwide tariffs and 60% China tariffs would raise prices by a one-time 2.4% spread over several years.
On economic growth, the CBO estimated that the tariffs would have an insignificant impact on GDP, with a 0.6% reduction in GDP in 2034, compared to a no-tariff projection. To put this in real terms, U.S. real GDP grew by about 28.4% over the past 10 years (from January 2014 to January 2024). If the U.S. had similar growth over the next 10 years, the CBO’s projected -0.6% GDP impact from tariffs would reduce economic growth from 28.4% to 27.8%.
While these findings show that the alarmist claims about the negative effects of tariffs are extremely overblown, the CBO’s projected economic and distributional effects of tariffs are still overly pessimistic.
CBO Analysis Ignore Growth Effect of Tariffs
The CPA analysis has shown that a 10% tariff would generate GDP growth on the order of 2.86%, while creating 2.8 million jobs and raising the average household income by $4,258. CPA’s analysis is based on a modified, updated, and more realistic trade model.
In contrast, CBO’s analysis relies on the standard GTAP economic model, which is too rigid. Among other shortcomings, the standard model limits the growth of industries in response to reduced imports. The U.S. International Trade Commission’s (USITC) findings on the impact of tariffs on 12 sectors of the U.S. economy found that tariffs substantially boosted domestic production.
“The CBO summary of its forecast shows that claims of negative consequences of broad-based tariffs are grossly overblown,” said Ferry. “The CBO has not come all the way to our side, but it is nevertheless a partial confirmation of our view of the US economy. Broad-based tariffs will generate economic growth, create jobs, and raise household incomes, with only a very minor one-time increase in consumer prices. In today’s world, tariffs are an essential tool for the US economy.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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