The Congressional Budget Office estimated Monday that the tariffs imposed by the U.S. and its trading partners as the Trump administration has opened up a multifront trade war will lower economic output over the next four years.
The CBO, Congress’ nonpartisan agency for budget and economic projections, calculated that the tariffs will reduce the level of GDP by 0.1 percent by 2022, a small effect. That estimate, however, only accounts for some of the tariffs President Trump has applied to Chinese imports and not the proposed 25 percent tariffs. Nor does it include the possibility that the tariffs have shaken business confidence and slowed investment.
“The changes in trade policy also increase uncertainty among investors, which may further reduce U.S. output,” said CBO director Keith Hall. “CBO’s estimates of the economic effects of the new tariffs are subject to considerable uncertainty, particularly over the longer run.”
The budget office noted that tariffs were taxes on imported goods and it predicted that they would increase the prices that consumers pay by 0.1 percent. “Like other price increases that result from taxes, those higher prices will reduce consumer spending by diminishing the purchasing power of consumer income and will reduce investment by making capital goods more expensive,” the CBO found.
White House economic adviser Larry Kudlow said later Monday afternoon that the administration frequently disagrees with the CBO and this was one of those occasions. “In a $20 trillion economy it is awfully hard to make even the best guesstimate of those kinds of small fractions of numbers,” he said.
U.S. exports are also predicted to fall by 0.5 percent due to a combination of retaliatory tariffs by trade partners and other impacts. For example, some U.S. products made from imported materials would become more expensive and, therefore, less competitive abroad.
The drag to the economy caused by the tariffs would be somewhat offset by additional revenue they are expected to raise. Total 2018 tariffs, including not just Trump’s tariffs but also previously existing levies, accounted for $41 billion in revenues. That figure is expected to increase to about $60 billion next year and stay at that level or higher until 2022.
Trump has placed tariffs of 10-25 percent on $250 billion worth of Chinese goods as part of an effort to force Beijing to change its trade policies and has threatened to raise those tariffs to 25 percent across the board if a deal is not reached by March 1. The White House has also placed tariffs of 25 percent on steel imports and 10 percent on aluminum ones and has threatened to place tariffs on auto and auto parts imports, but has held off on them pending the outcome of talks with the European Union.
[Also read: The shutdown will end up costing the economy just $3B, budget office estimates]
