Recent government data and reports provide valuable insights into how tariffs are affecting the U.S. economy.
➡️ In CBO’s Current View of the Economy From 2025 to 2028, the Congressional Budget Office (CBO) reports that the Trump Administration’s tariffs will shrink the U.S. economy, undermine the pro-investment provisions of the One Big Beautiful Bill Act by increasing the cost of capital goods and inputs needed by U.S. businesses, reduce U.S. productivity, slow the growth of potential output, and create temporary pressure for inflation as businesses pass the costs of tariffs to consumers.
The CBO analysis also concludes that business uncertainty resulting from tariffs will reduce investment levels compared to the level of investment that would take place without tariffs.
➡️ In An Update About CBO’s Projections of the Budgetary Effects of Tariffs, CBO estimates that, if left in place, tariffs will reduce federal budget deficits by $3.3 trillion from 2025 to 2035 and, in turn, reduce interest payments by another $700 million.
These projections are inaccurate. Even if tariffs increased federal revenues by $3.3 trillion, despite the slower growth caused by tariffs and reduced revenue growth from other sources, it is naive to think that these revenues would be used for deficit reduction. There are already proposals to use tariffs to pay for child care, to bail out farmers, to pay for a border wall, to replace income taxes, to create a sovereign wealth fund, or to send checks to Americans. History shows that, when the government increases taxes, it spends the money. A more effective approach to deficit reduction would be to control federal spending.
➡️ In U.S. Goods Inflation Lower than Other Countries, President Trump’s Council of Economic Advisers claims there is a lack of evidence that tariffs are leading to higher inflation. Research from the Peterson Institute for International Economics suggests that this is because many U.S. companies initially absorbed the cost of tariffs. While that protects consumers from price increases, it reduces the ability of these businesses to hire new workers and expand. And businesses can’t keep eating the costs indefinitely.
Shortly after the CEA report was published, the Bureau of Labor Statistics (BLS) released its updated Import Price Index. The overall increase from July to August was 0.3%, which would translate to an annual increase of 3.6% if this monthly increase is maintained. But imports that are important to manufacturers, like capital goods and industrial supplies, showed bigger price increases, and the price increase for consumer goods other than autos was 0.7%, which is equal to an 8.4% annualized rate of increase. Those increases are in addition to the unprecedented $30 billion in tariff revenue collected from Americans in August.
The BLS also released data showing that, since “Liberation Day” tariffs were announced in April, the United States has experienced job losses in several tariff-affected sectors, including manufacturing, construction, and the wholesale and retail industries.
Meanwhile, the farm economy, devastated by tariffs on inputs and the loss of foreign markets for commodities like soybeans and sorghum, is so bad off that the Trump Administration is reportedly preparing a new farm bailout package.
The evidence continues to mount that Trump advisers like Peter Navarro have things backwards. While Navarro insists that rolling back Trump’s one-sided tariffs would be catastrophic, the real danger to the U.S. economy is becoming undeniable: it’s the tariffs themselves.