- President-elect Donald Trump has vowed across-the-board tariffs on a scale that hasn’t happened in the U.S. in more than 50 years. The Congressional Budget Office recently estimated that such tariffs would shrink the budget deficit, but also reduce economic output.
Donald Trump made tariffs a centerpiece of is successful presidential campaign, and the Congressional Budget Office recently estimated they could shrink the budget deficit—as well as the economy in the process.
On the social-media platform X on Thursday, the president-elect commented on a post from venture capitalist Marc Andreessen on tariffs as a share of federal revenue from the late 1700s to today.
“The Tariffs, and Tariffs alone, created this vast wealth for our Country,” Trump wrote. “Then we switched over to Income Tax. We were never so wealthy as during this period. Tariffs will pay off our debt and, MAKE AMERICA WEALTHY AGAIN!”
The federal government relied on tariff revenue when its role in society was relatively minuscule compared to today. But that changed over hundreds of years. The first federal income tax was imposed during the Civil War as the Union mobilized a vast army.
In the first half the 20th century, when the U.S. fought two world wars and emerged as a global superpower, reliance on income taxes soared while tariff revenue became less important.
In the latter half of the 20th century, the U.S. pushed for freer trade and lower tariffs around the world. Meanwhile, the social safety net grew, requiring payroll taxes to finance programs like Social Security and Medicare.
But amid a backlash against free trade in the 21st century, Trump imposed targeted tariffs on China during his first term, which President Joe Biden continued. On the campaign trail in 2024, Trump promised even more, vowing to impose duties of 10%-20% across the board while singling out China with duties of up to 60%.
Tariffs on that scale haven’t happened in the U.S. in more than 50 years. Top CEOs have already warned that tariffs would translate to price hikes for consumers. And bond yields have surged as the prospect of stickier inflation prevents the Federal Reserve from lowering rates faster.
With businesses and policymakers bracing for tariffs, Senate Democrats asked the Congressional Budget Office to forecast their impacts. Last month, the CBO responded with an analysis on their budgetary, economic, and distributional effects.
For the purposes of its forecast, the CBO assumed a uniform tariff of 10% and a China tariff of 60%. It estimated that the increase in revenue would help shrink the federal budget deficit by $2.7 trillion from fiscal years 2025 to 2034, after accounting for economic impacts and retaliation from trade partners.
The CBO didn’t address the tariffs’ effect on total U.S. debt. But a forecast from June, estimated that federal deficits would total $22.1 trillion over the next 10 years. That means Trump tariffs could lower—but not eliminate—deficits, which would continue adding to the overall debt pile of $36 trillion.
Meanwhile, the CBO warned tariffs would make consumer and capital goods more expensive, cause U.S. businesses to delay or forgo new investment, reduce productivity, and trigger retaliation that hits U.S. exports.
“All of those effects would lower U.S. output,” CBO Director Phillip Swagel wrote to Senate Democrats on Dec. 18, adding that some imported goods would be replaced by domestically produced ones and offset some of that impact.
The net result on the economy would be a 0.6% reduction in real GDP by 2034. That dip would be even steeper without the accompanying deficit reduction. The CBO said less federal borrowing would
increase the funds available for private investment, fueling output and softening the overall economic blow.
As for inflation, the CBO sees Trump tariffs boosting prices by 1% in 2026. But after that, they “would not have additional significant effects.” In addition, tariffs would also cause the dollar to rise, dampening the cost impact on imported goods and making some imported services cheaper. And trade retaliation would shrink foreign demand for some domestically made goods, making them less costly for Americans.
Trump tariffs would have varying effects across the economy, the CBO added. Of course, industries that compete with imports would benefit, while those that export goods would be hurt.
Higher prices would represent a bigger burden for lower-income households. Meanwhile, the dollar value of U.S. holdings of foreign assets would fall as tariffs jolt currency markets.
“That reduction in U.S. wealth would likely be concentrated at the top end of the income distribution,” the CBO’s Swagel said.
