CBO Says Section 232 and IEEPA Tariffs Would Reduce Deficit by $2.8 Trillion by 2035
The nonpartisan Congressional Budget Office estimates that there would be $2.5 trillion collected in tariffs -- after accounting for consumer changes -- from 2025 to 2035 if the global 10% reciprocal tariff remained, de minimis was still curtailed, and tariffs on most Chinese products and on some Mexican and Canadian products, as well as 25% tariffs on the auto sector, steel and aluminum, continue during that period. (The estimate was prepared before the president doubled the tariffs on steel and aluminum.)
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However, these tariff actions would lower the deficit over the decade by $2.8 trillion, the CBO estimated. That additional savings is due to a couple of factors -- higher inflation in 2025 and 2026 would likely mean higher income tax revenues, even with the drag on the economy that would otherwise reduce revenues. With less borrowing, there also will be less interest paid.
The report was in response to a request from the top Democrat on the Senate Finance Committee, the Senate Minority Leader and one other Democrat.
"Because the United States has implemented no increases in tariffs of this size in many decades, there is little relevant empirical evidence on their effects. On the one hand, tariff increases of this magnitude could induce consumers and businesses to change their behavior faster than anticipated, which would cause revenues to be lower than CBO projects," the report said. "On the other hand, most historical increases in tariffs have targeted goods for which consumers and businesses are particularly responsive to changes in prices. Consumers and businesses may change their behavior less in response to less targeted tariffs. In that case, revenues would be higher than CBO projects."
When adjusted for inflation, all households will be poorer, given the drag on business hiring and technology adoption, but also because of higher prices.
However, CBO noted the effects will vary. "Industries that produce goods that compete with imports will probably expand, whereas industries that chiefly produce exports or source a large share of their production inputs from abroad will probably contract," it wrote.
CBO will continue to update its estimates as tariff policy changes.