Report: Trump's tariff plan will cause the annual inflation rate in the United States to rise by 0.4% and result in a permanent decrease of 0.06% in the annual GDP growth rate.

The Trump administration's massive global tariff plan will cut the federal deficit by $2.8 trillion over the next 10 years, but at the same time lead to slower economic growth, higher inflation, and overall weakening of the purchasing power of U.S. households, according to an analysis released Wednesday by the U.S. Congressional Budget Office (CBO). The letter, sent to Democratic congressional leadership, details the impact on ordinary households of the Trump administration's administrative move to impose broad tariffs on many countries. The report notes that the CBO's model assumes that U.S. households will eventually reduce imports from countries subject to tariffs, and predicts that tariffs will increase average annual inflation by 0.4 percentage points between 2025 and 2026. The analysis also assumes that the tariffs announced by the Trump administration through executive orders between January and May will be in place for a long time. Although the Federal Court had previously ruled that its invocation of emergency powers to impose tariffs was ultra vires, the Court of Appeal allowed the tariffs to continue to be levied during the litigation. The CBO's conclusions are consistent with other economic model predictions: a 10-year deficit reduction of $2.8 trillion will come at the cost of shrinking household wealth and a contraction in the aggregate economy. The report estimates that tariffs would cause a permanent 0.06 percentage point decline in annual real GDP growth in the United States. This comes after a more pessimistic April report from the Pennsylvania Wharton Budget Model, predicting that such tariffs could shrink long-term GDP by 6% and wages by 5%. Notably, the CBO's report highlighted significant uncertainties in its calculations, one of the reasons being that "the Trump administration may adjust the way tariffs are implemented at any time." (Golden Ten)