Title: The Effects of Tariffs and Trade Barriers in CBO’s Projections | Congressional Budget Office
Headings: The Effects of Tariffs and Trade Barriers in CBO’s Projections
The Effects of Tariffs and Trade Barriers in CBO’s Projections
What Tariffs Have Been Imposed?
How Do the Tariffs Affect the Economy?
How Uncertain Are CBO’s Estimates of Those Effects?

Content: How Do the Tariffs Affect the Economy? In CBO’s projections, the tariffs affect U.S. economic activity in several ways. First, they make consumer goods and capital goods more expensive, thereby reducing the purchasing power of U.S. consumers and businesses. Second, they increase businesses’ uncertainty about future barriers to trade. Such uncertainty leads some U.S. businesses to delay or forgo new investments or make costly adjustments to their supply chains because changes in trade policies might affect the costs of their operations. Third, they prompt retaliatory tariffs by U.S. trading partners, which reduce U.S. exports by making them more expensive for foreign purchasers. All of those effects lower U.S. output. In the other direction, U.S. consumers and businesses are expected to replace certain imported goods with goods produced in the United States, which would offset some of that decline in output. In addition, tariff revenues, by reducing the deficit, increase the resources available for private investment. On balance, in CBO’s projections, the trade barriers imposed since January 2018 reduce both real output and real household income.