Trump's China tariffs to take bite out of U.S. economy, CBO warns

The Congressional Budget Office is sounding the alarm on President Trump’s trade war, saying tariffs will have a material impact on the U.S. economy.

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“CBO expects the changes in U.S. and foreign trade policies since January 2018 to reduce the level of real U.S. GDP by about 0.3 percent by 2020,” the CBO said in its updated budget and economic outlook for 2019 to 2029. “Tariffs reduce domestic GDP chiefly by raising domestic prices, which reduces the purchasing power of U.S. consumers and increases the cost of business investment.”

The report also said real income for the average U.S. household would fall by 0.4 percent during that time.

While the CBO sees the U.S. economy growing at a 2.3 percent pace in 2019, it expects growth to slow to an average of 1.8 percent between 2020 and 2023, the report said.

Since January 2018, the Trump administration has placed tariffs on $250 billion worth of Chinese goods, and threated tariffs on another $300 billion of goods. The taxes have drawn the ire of Beijing, which has responded by escalating the dispute into a tit-for-tat trade war.

The trade war may already be having an impact on the U.S. economy.

Gross domestic product grew at an annualized rate of 2.1 percent in the second quarter, down from 3.1 percent the prior quarter. And recession bells rang last week when the spread between the U.S. 2-year and 10-year yield turned negative for the first time in over a decade. Such an event has occurred ahead of every U.S. recession in the past 50 years.


The slowing economy has caught the attention of Trump, who on Wednesday lashed out at the Federal Reserve, and called for a “big” rate cut.

A day earlier, Trump said he was considering several options to jumpstart the economy, including a temporary payroll tax cut and indexing capital gains to inflation.