The Congressional Budget Office projected that President Trump’s escalating tariff policies could reduce the federal deficit by $4 trillion over the next decade. 

While this substantial deficit reduction may appear as a fiscal victory, American consumers and businesses, not other countries, are footing the bill for this government revenue through higher prices.

The CBO’s latest analysis found that the effective tariff rate for goods imported into the United States has surged by approximately 18 percentage points compared to 2024 levels. Current tariff rates now average 18.6% across all imports, representing the highest level since 1933. This increase from the 2.4% rate at the beginning of 2025 means Americans face tariff levels eight times higher than what they experienced just months ago.

These elevated tariff rates are generating substantial government revenue. The CBO estimates that customs duties from new and existing tariffs will total approximately $200 billion in fiscal year 2025 alone. Over the next decade, if current tariff policies remain in place, the government projects $3.3 trillion in primary deficit reduction, with an additional $700 billion in savings from reduced federal borrowing costs.

Despite political rhetoric suggesting otherwise, economic evidence consistently demonstrates that American importers and consumers bear the cost of tariffs. When goods arrive at U.S. ports with tariff rates applied, American companies must pay these taxes to U.S. Customs and Border Protection before the products can enter the domestic market.

If a television imported from China costs $400 with a 10% tariff, the American importer must pay $40 to the government, which typically gets passed on to consumers through higher retail prices within six to eight months.

Tariffs are driving particularly steep price increases in sectors that affect everyday necessities. The Yale Budget Lab’s analysis shows that clothing prices are expected to rise 37% in the short run, with shoe prices increasing by 39%. Even after consumers adjust their purchasing patterns, clothing prices will remain 17% higher and shoes 18% higher in the long run.

Electronics face a 17% price increase in the short term, affecting smartphones, tablets, televisions, and computer equipment. Automotive prices are projected to rise 12.4% in the short term and 9.4% in the long run. These increases cascade through the economy because many domestic products rely on imported components and raw materials.

The impact extends to basic commodities essential for American production. Metal prices are expected to surge 41% in the short term and remain 17% higher long-term, while crop prices will increase 31.5% initially and stabilize 18% above previous levels. 

The tariff regime is already showing effects in labor markets. The Yale Budget Lab projects that the unemployment rate will rise by 0.4 percentage points by the end of 2025 and 0.7 percentage points by the end of 2026. Payroll employment is expected to be 494,000 jobs lower by the end of 2025.

While Americans will spend more because of tariffs, the federal government is simultaneously spending at record levels.

The “One Big Beautiful Bill” (OBBB), signed into law by President Trump on July 4 will increase deficits by $3.4 trillion over the next decade, or more than $4.1 trillion when including interest costs on the additional debt.

The Congressional Budget Office estimates that federal spending increased by $166 billion in the first four months of 2025 compared to the same period in 2024. By the first half of calendar year 2025, spending had risen by $144 billion year-over-year.