CBO Report on Trump’s Tariffs Shows Surprising Results
A recent report from the Congressional Budget Office (CBO) has caught many off guard, especially considering its history with the current administration. The main question always seems to be whether the CBO will take a serious look at “dynamic scoring” when it comes to significant legislation and regulations. But regardless of their methodology, they recently released findings on tariffs introduced by Trump.
The CBO estimates that the increase in tariffs from January 6, 2025, to August 19, 2025, could cut the primary deficit—excluding profit-related expenditures—by $3.3 trillion if these tariffs continue through 2035. With decreased federal borrowing needs, they project an additional reduction of $0.7 trillion in federal spending due to lower interest costs. Ultimately, this could bring the total deficit reduction to $4 trillion due to tariff changes.
Trump’s tariff revenues have surged, surpassing levels seen in 2024. Those in favor of free trade need to analyze this data closely. Surprisingly, inflation hasn’t skyrocketed, growth hasn’t plummeted, and customs duty income has been substantial. The anticipated international trade war hasn’t materialized either.
This situation feels reminiscent of the old Sesame Street song—”one of these things doesn’t belong here.” Perhaps it’s time to question whether President Trump is approaching tariffs correctly, considering the U.S.’s standing against its trading partners and the effects of non-tariff barriers.
I recently spoke with Dr. Richard Mackenzie, a free market economist at UC Irvine. He’s been monitoring the data but remains unconvinced of its implications. However, he acknowledges that Trump’s threats may make global trade freer.
Mackenzie addressed whether free market economists might reassess their stance on tariffs in light of the CBO’s findings. He stated that tariffs and minimum wage have long been tests for market economists, but their perspectives have always been influenced by Trump’s strategies. He argues that threatening tariffs can sometimes lead to reduced tariffs from other nations.
He explained that the notion Trump seems to advocate—a kind of balancing act where “my tariffs offset your tariffs”—doesn’t help the situation as it stands. If tariffs are indeed impactful, they could hurt domestic revenue and possibly reduce IRS collections.
Mackenzie brought up the classic argument made by economists: “Tax is tax, tax, tax!” The CBO’s estimates of revenue increases and deficit reductions highlight this reality. While some nations, like Canada, may reduce tariffs in response to Trump’s threats, long-term reliance on this strategy could be problematic.
Interestingly, Peter Navarro, Trump’s senior trade and manufacturing advisor, has a very different stance. He and Mackenzie have known each other for years but have diverged significantly in their views. Navarro has supported tariffs on China since his book, “Death by China,” was published in 2011.
This clash of opinions is part of an ongoing debate in the economic community. Personally, I’ve been against tariffs for a long time—an opinion rooted in the lessons about the 1930 Smoot-Hawley tariffs I learned over fifty years ago, which has shaped discussions on free markets ever since the Reagan era.
Searching for coverage on the CBO and tariffs will likely yield various perspectives from media outlets, both left and right, especially this week. Many might highlight that the CBO’s report is just a preliminary assessment of the overall economic climate.
It’s curious how the CBO’s “Update on Tariff Budget Effects” was received, given its human element, yet not treated as such in the media. The pressing question remains whether free market advocates will reconsider their dismissal of the president’s trade policies.
I personally have reservations about the executive authority to impose such extensive measures, especially outside the realm of clear national security threats, like those posed by China. This topic regarding the limits of executive power has been addressed in ongoing appeals at the Federal Circuit Court. Considering that Congress is granted customs authority and there’s a history of delegating some powers to the president, whether this situation lands in the Supreme Court remains to be seen.
Ultimately, if the International Emergency Economic Powers Act (IEEPA) provides sufficient authority, it could reignite the “non-decision doctrine” that the Supreme Court set aside nearly a century ago. But I’m not sure that will happen, and I doubt anyone else is either.
Just a single ruling from a U.S. District judge indicated the president overstepped his bounds, and that ruling holds steady for now. This leaves us with limited information—recent court decisions have been quite rare, almost as scarce as wins for the Browns since their return to Cleveland.
However, at the end of the day, numbers don’t lie. A projected $4 trillion reduction in the deficit translates to $4 trillion less in taxpayer burden. The implications here are significant for both marketplace participants and the general public. Consequently, the CBO’s update warrants attention, regardless of how mainstream media chooses to frame it.
