Trump Tariffs to Raise Inflation by 0.4% in 2025-2026, Slow GDP Growth

The U.S. Congress Budget Office has released a report indicating that the tariffs imposed by Donald Trump are expected to have significant economic repercussions. The office estimates that these tariffs will increase the average annual inflation rate by 0.4 percentage points in 2025 and 2026. Additionally, the tariffs are projected to slow down the U.S. economic growth, reducing the annual GDP growth rate by 0.06 percentage points.

This means that by 2035, the U.S. GDP growth rate would be 0.6 percentage points lower than what was initially projected by the Congress Budget Office earlier this year. The report also highlights that Trump's comprehensive tariff plan is anticipated to reduce the federal deficit by 2.8 trillion dollars over the next decade. However, this reduction comes at a cost, as the tariffs are likely to cause economic contraction and increase inflation, thereby lowering the overall purchasing power of American households.

The analysis underscores the complex trade-offs involved in implementing tariff policies. While the tariffs may help in reducing the federal deficit, the economic downsides, including slower growth and higher inflation, are substantial. This report serves as a reminder of the delicate balance that policymakers must strike when formulating economic strategies, particularly those involving international trade.

The report also warns of significant uncertainties in its estimates, largely due to the potential for changes in the Trump administration's tariff policies. The unpredictable nature of Trump's tariff decisions, often announced abruptly through social media, adds to the economic uncertainty. This unpredictability affects not only the U.S. economy but also global trade and business operations.

Furthermore, the legal challenges to Trump's tariff policies add another layer of complexity. For instance, a federal court recently struck down a broad tariff imposed under emergency powers, although Trump has appealed the decision and continues to collect tariffs during the appeal process. These legal battles further complicate the economic landscape and add to the uncertainty surrounding the implementation of tariff policies.

The Congress Budget Office's analysis also extends to the Republican Party's proposed "Big and Beautiful" budget bill, which is estimated to increase the U.S. deficit by 2.4 trillion dollars. This highlights the broader fiscal implications of policy decisions and the need for a balanced approach to economic management.