The Congressional Budget Office (CBO) projects that recent U.S. tariff increases will reduce federal deficits by $2.8 trillion over the next decade, primarily through increased customs revenue and lower interest payments on federal debt—more than enough to offset the projected cost of President Donald Trump’s proposed tax cut bill.
In a separate analysis, the CBO recently estimated that extending the 2017 tax cuts, as proposed in the administration’s new tax and spending bill, would increase the deficit by roughly $2.4 trillion over the same period. That legislation would reduce federal revenues by $3.67 trillion while cutting spending by $1.25 trillion, resulting in a net increase in the federal deficit.
The CBO’s estimate of gains from tariffs strengthens the administration’s case that tariffs can pay for tax relief. In fact, the combination of tax relief and tariffs produces a net reduction in deficits, according to the CBO.
The tariff estimate covers measures implemented between January 6 and May 13, 2025. These include a 30 percent levy on imports from China and Hong Kong, 25 percent duties on autos, auto parts, steel, and aluminum, a 10 percent general tariff on most other imports, and the elimination of duty-free treatment for low-value Chinese shipments.
CBO estimates that, before accounting for economic side effects, the new tariffs will reduce primary deficits by $2.5 trillion and cut interest payments by another $500 billion, for a total deficit reduction of $3.0 trillion. After factoring in modest economic drag—slightly lower GDP and temporarily higher inflation—the net deficit reduction is pegged at $2.8 trillion.
The report notes that real GDP is expected to be 0.6 percent lower by 2035 than previously forecast, while inflation will run about 0.4 percentage points higher in 2025 and 2026. These effects are expected to fade over time.
Supporters of the tariffs say that the CBO’s estimate undercounts potential growth in productivity and investment from onshoring manufacturing. Manufacturing jobs tend to be much more productive than many service sector jobs, so substituting manufacturing for service sector output could improve economic efficiency.
Unlike earlier tariff programs, the CBO assumes no broad exemption process, which boosts projected revenue. Retaliation by U.S. trading partners is expected, but likely limited in scope. While some of the tariffs have been challenged in court, they remain in effect under a federal appeals court stay.
The CBO report contradicts many standard anti-tariff arguments. Despite what the CBO sees as negative effects on growth and inflation, the tariffs produce a net fiscal gain, and the economic damage is modest, frontloaded, and mostly reversible. It positions the new tariffs as a fiscally conservative policy that raises revenue and lowers debt with relatively limited macroeconomic fallout—especially if the trade leverage leads to better terms or foreign concessions.
Read the full article here