President Trump has used authority ceded to the Executive Branch by Congress during the Cold War to impose new tariffs on 12 percent of all imported goods, including washing machines, solar panels, and steel and aluminum products. The Congressional Budget Office’s new Budget and Economic Outlook examines how these taxes on trade will dampen the economy.
Despite the assurances made by Peter Navarro, Trump’s trade advisor, that “no country would dare retaliate,” many countries did indeed retaliate with counter tariffs hitting 9 percent of U.S. exports, including industrial supplies and agricultural products.
By CBO’s analysis, the tariffs and retaliatory actions already in place “will reduce U.S. real (inflation-adjusted) gross domestic product (GDP) by about 0.1 percent, on average, through 2029.”
This would represent an average annual $26 billion reduction in economic activity. By comparison, the 35-day partial shutdown of the federal government will ultimately result in $3 billion of foregone activity that “will not be recovered.”
CBO also notes that tariffs “reduce the purchasing power of domestic consumers and increases the cost of business development” and also negatively impacts U.S. exports. The Trump administration also has threatened to impose additional $90 billion worth of tariffs on imports. If implemented, and as other countries hit back with retaliatory trade restrictions on U.S. goods, the direct impact and the resulting uncertainty will further increase the hit to consumers’ wallets and the economy.