An Update About CBO's Projections of the Budgetary Effects of Tariffs

The Congressional Budget Office routinely provides information to the Congress about the budgetary effects of tariffs. Analysis of tariffs is our responsibility rather than the responsibility of the staff of the Joint Committee on Taxation because the laws that set tariffs are not part of the Internal Revenue Code. As tariffs changed frequently throughout 2025, we have regularly updated the Congress about projected tariff revenues; this blog post is the latest in that series. This time, we have updated our estimates of tariff revenues as part of developing the short-term economic forecast (covering 2025 to 2028) that we will be publishing on September 12.

As of August 19, we estimate that the effective tariff rate for goods imported into the United States has increased by about 18 percentage points when measured against 2024 trade flows. We project that increases in tariffs implemented during the period from January 6, 2025, to August 19 will decrease primary deficits (which exclude net outlays for interest) by $3.3 trillion if the higher tariffs persist for the 2025‒2035 period. By reducing the need for federal borrowing, those tariff collections will also reduce federal outlays for interest by an additional $0.7 trillion. As a result, the changes in tariffs will reduce total deficits by $4.0 trillion altogether.

Because of recent changes in tariffs, those estimates are larger than the $2.5 trillion decrease in primary deficits and $0.5 trillion reduction in interest outlays that we projected in early June in a report that examined the effects of the tariffs implemented between January 6 and May 13, 2025. Both the current and earlier estimates use the same methods to generate the projections of tariff revenues, which are mainly based on data from the Census Bureau, Customs and Border Protection, and the Treasury. The methods account for a diversion of trade from countries facing high tariff rates to other countries facing lower tariff rates. The estimates are subject to significant uncertainty, largely owing to questions about timing, possible exceptions, and a lack of precedents.

We have incorporated the estimated effects of tariffs currently in place in our baseline, as we usually do when the Administration uses its authority to change tariff rates. Those estimates do not account for effects on the size of the economy. The additional budgetary effect of those economic changes will be incorporated in early 2026 when we publish updated economic and baseline budget projections in The Budget and Economic Outlook: 2026 to 2036.

How Have Tariffs Changed in 2025?

Since January, tariff rates have increased for many goods, including these: 

Exemptions and interactions between those increases in tariff rates are also reflected in CBO's analysis. In addition, on May 2, imports from China and Hong Kong lost eligibility to use the de minimis exemption, which allows commercial packages worth less than $800 to enter the United States duty-free.

The 2025 reconciliation act (Public Law 119-21) more broadly modified de minimis rules for commercial shipments, ending duty-free treatment of those imports effective July 1, 2027.

What Assumptions Does CBO Make When Projecting Tariff Revenues?

When the Administration modifies tariffs through an administrative action, we assume that the tariffs then in effect will continue permanently without changes. We incorporate changes announced by the Administration after they are implemented. Thus, our projection of revenues from tariffs in effect as of August 19, 2025, does not include the changes in tariff rates announced in an August 21 joint statement with the European Union, the scheduled August 27 increase in the tariff rate on imports from India (by an additional 25 percent), or the August 29 suspension of duty-free entry for commercial shipments of less than $800.

In accordance with provisions of the Balanced Budget and Emergency Deficit Control Act of 1985, our baseline reflects the scheduled expiration of legislative tariff programs. For example, the trade preference programs under the U.S.‒Caribbean Basin Trade Partnership Act are scheduled to expire at the end of September 2030.

How Have Customs Revenues Collected in Fiscal Year 2025 Differed From Amounts That CBO Projected in January?

As a result of the increases in tariff rates, revenues have been greater than we projected in January. Through July, the Treasury reports that duties have totaled $136 billion, with $28 billion collected in July alone. On the basis of tariffs in place on January 6, we projected that customs duties would total $80 billion in fiscal year 2025—an amount near the average of the previous five years.

CBO projects further increases in tariff revenues in the coming months. If there are no further changes in tariff rates, we project that customs duties from new and existing tariffs will total about $200 billion this fiscal year. However, that estimate is subject to uncertainty because of variability between when the rates are implemented and when the Treasury receives the related revenues.

Revenues can lag the implementation of changes in tariff rates by several months. Typically, once tariff rates go into effect, they are not applied to goods already in transit to the United States, which can take as long as two months. In addition, importers have the option to delay payments by up to six weeks by participating in Customs and Border Protection's Periodic Monthly Statement program.

What Additional Effects Will Be Reflected in CBO's Next Economic Forecast?

The short-term economic forecast we are publishing next month will reflect the effects of increases in tariffs on U.S. imports implemented between January 6 and August 19. The forecast will also reflect the effects of changes in tariffs on U.S. exports made by other countries.

We estimate that the changes in tariffs, both by the United States and its trading partners, will reduce the size of the U.S. economy. That reduction in output reflects both negative and positive effects: the negative effects of higher tariffs through channels such as reduced investment and productivity, and the positive effects of additional revenues from tariffs on U.S. imports, which would reduce federal borrowing and increase the funds available for private investment.

The increases in tariffs will make consumer goods and capital goods (the physical assets that businesses use to produce goods and services) more expensive, which will reduce the purchasing power of U.S. consumers and businesses. Those increases in costs will put temporary upward pressure on inflation.

Our short-term economic forecast will also reflect the interactions between the changes in tariffs and other changes, including those stemming from provisions of the 2025 reconciliation act. Then, our next 10-year economic forecast and budget baseline will fully reflect the economic and budgetary effects of changes implemented through legislative and administrative actions.

What Sources of Uncertainty Are Related to the Estimates?

The Administration could change how tariff policies are administered. The projections described here reflect the assumption that the tariffs will be collected on all affected imports, with no exemptions beyond those currently specified. If mechanisms for additional exemptions were implemented, the tariff duties collected could decline substantially.

Moreover, the United States has not implemented increases in tariffs of this size in many decades. As a result, there is little empirical evidence about their long-term effects. Consumers and businesses could be more or less responsive to increases of tariffs of this size, which would cause revenues to diverge from projected amounts.

We will continue to assess how businesses and consumers respond to the tariff changes and will incorporate that information in future analyses.

Phillip L. Swagel is CBO's Director.