Trump’s retreats on tariffs have already wiped out $800 billion of expected deficit reduction, CBO estimates

According to the Congressional Budget Office’s updated baseline budget projections, the expected impact of tariff policy on the US deficit has declined sharply since its last tariff revenue projections in August. At that point, an effective tariff rate of 20.5% would imply $3.3 trillion in future deficit reduction through 2035, and about $700 billion in interest savings.

However, since June, the scope and size of these tariffs have changed significantly. The administration’s decision to withdraw or ease tariffs on a range of imports – particularly with major trading partners such as China and the European Union – in response to escalating trade tensions and retaliatory measures, has dramatically changed the financial outlook. The Congressional Budget Office now estimates that the fiscal benefits from tariffs have been largely eroded, with an effective tariff rate of 16.5% meaning a deficit reduction of about $2.5 trillion and interest savings of about $500 billion.

Political and economic forces drive transformations

The Congressional Budget Office notes that these large debt reduction projections are highly sensitive to the fate of tariff policy – ​​a policy area characterized by political volatility and economic uncertainty. Initially, Trump promoted tariffs as a tool to reduce ballooning federal debt, and more recently claimed that the policies would generate revenues far exceeding government expectations. ​

The CBO calculated the reduced tariffs from five separate announcements with different trading partners, announced between early September and early November. It consisted of amendments to the agreement with Japan, with the European Union, on cars and spare parts, with India, and with China. The CBO did not even include another pending tariff reduction that is important to Americans’ wallets.

After stinging election losses to Republicans in early November, when Democrats won 18 of the 18 nationwide races that were on the ballot, Trump moved mid-month to eliminate several tariffs tied to affordability concerns. “We’ve pulled back a little bit on some foods like coffee,” Trump told reporters aboard Air Force One, hours after announcing the rollback of tariffs. Hours ago, Trump signed an executive order canceling customs duties on tea, fruit juice, cocoa, spices, bananas, oranges, tomatoes, and some fertilizers.

Meanwhile, Trump has struggled to acknowledge that Democrats’ affordability arguments are real. The day after the tariff repeal, he said on social media that “Affordability is a lie when Democrats use it. It’s a total CON JOB. Thanksgiving costs are 25% lower this year than last year, under Crooked Joe! We’re the party of affordability!” This appears to be a reference to a particular Walmart meal deal that has half the number of items in 2024.

Stubborn debts and lingering risks

The erosion of deficit reduction due to tariffs comes amid worsening congressional gridlock over broader fiscal policy. Treasury Department reports indicate that the US national debt currently exceeds $38 trillion, a number that continues to grow despite years of political promises to rein it in. The Congressional Budget Office notes that even the most ambitious tariff projections would have barely made a dent in the debt’s steep trajectory — but even those additional benefits are now fading.

Economists warn that while tariffs could generate significant government revenue in the short term, their broader economic impacts — such as higher consumer prices, supply chain disruptions, and lower growth — could ultimately offset the initial fiscal gains. Indeed, some independent analysts assert that the Congressional Budget Office’s calculations may not fully account for longer-term economic headwinds from ongoing trade disputes.