What are independent estimates of the economic costs (price increases, GDP impact) that offset tariff revenue?
Executive summary
Independent analyses converge that the 2025–26 U.S. tariff program raises consumer prices modestly to materially—estimates cluster between a one-off price-level increase of roughly 0.9–2.3 percent and category-specific spikes much larger—while trimming real GDP by between about 0.3 percent in the long run up to 1 percent or more in harsher scenarios, with dynamic feedbacks cutting into the very tariff revenues the policies generate [1] [2] [3] [4] [5]. Those economic costs—lost purchasing power measured as thousands of dollars per household, lower GDP levels, and reduced investment—substantially offset projected revenue gains that are reported in the trillions on a conventional score but fall by several hundred billion to over a trillion once macroeconomic effects are included [3] [2] [6] [5].
1. Price effects: modest aggregate rise, sharp sector winners and losers
Macro and sectoral studies show a consistent pattern: tariffs lift price levels overall by about 0.9–1.7 percent in most central simulations, but some goods face much larger short-run increases—clothing, metals and certain manufactured inputs saw projected short-run jumps of 28–40 percent in some Yale simulations and 37–39 percent for apparel and shoes in others—creating concentrated pain for consumers and firms that use those inputs [2] [7] [8]. The Congressional Budget Office’s analysis finds that consumption price indexes could be roughly 0.9 percent higher by 2026 relative to its baseline, with most additional price pressure concentrated in the near term [9]. Financial-sector forecasters similarly expect tariffs to nudge headline inflation higher (Morningstar projects inflation moving toward 2.7% in 2026 because firms pass on tariff costs) and Goldman/Goldman-linked estimates imply tariffs accounted for roughly 0.5 percentage point of inflation in 2025 [10] [11].
2. GDP and employment: consistent negative drag, size depends on assumptions
Independent models differ on magnitude but not direction: Yale’s Budget Lab finds real GDP growth depressed by roughly 0.5 percentage points in 2025–26 in baseline scenarios and long-run GDP levels 0.3–0.6 percent smaller depending on specification, with payroll employment hundreds of thousands lower and higher unemployment rates [3] [1] [2]. The Congressional Budget Office projects the level of real GDP about 0.6 percent below its no-tariff forecast and an average annual growth reduction of roughly 0.06 percentage points from 2025–35 [9]. Large-bank and IMF-calibrated scenarios place the downside risk higher—Goldman/JP Morgan cite potential U.S. GDP loss up to about 1 percent through 2026 under retaliation and broad tariff increases [4] [5]. The San Francisco Fed warns responses can be complex—initial impacts can resemble negative demand shocks, and pass-through to final prices is partial and variable [12].
3. Revenue versus economic offset: headline gains erode once dynamics are counted
Conventional budget scores show large nominal tariff receipts—Yale’s conventional tallies placed 2026–35 receipts in the trillions and the Tax Foundation projected hundreds of billions in near-term receipts and per-household “tax-like” increases—but those conventional numbers assume fixed economic activity and hence overstate net fiscal gain [2] [6]. When dynamic effects (lower GDP, reduced investment, and resulting smaller tax bases) are applied, multiple independent estimates shrink net revenue by hundreds of billions: Yale and related analyses estimate dynamic revenue offsets in the range of roughly $366 billion to $1 trillion over a decade depending on scenario, and some simulations reduce conventionally scored receipts by several hundred billion to more than half in extreme cases [3] [5] [2]. The CBO’s methodology also implies smaller net gains once macro feedback is included [9].
4. Uncertainties, modeling choices and political context that shape the numbers
Key differences in the literature come down to legal and behavioral assumptions—whether IEEPA tariffs remain, whether trading partners retaliate, how quickly supply chains reoptimize, and how much firms absorb costs vs. pass them to consumers—and those choices move headline results substantially [4] [5] [3]. Institutions with different missions emphasize different outcomes: industry-protection arguments highlight manufacturing gains, macro-budget shops stress economy-wide losses and dynamic revenue erosion, and partisan actors can overfocus on the gross revenue line while underweighting distributional and long-run GDP effects [2] [1] [6].
Conclusion: what independent estimates collectively imply
Across reputable independent analyses, tariffs produce real revenue but also create nontrivial consumer price increases and a persistent negative drag on GDP; when macroeconomic feedbacks are included, a sizable share—often several hundred billion dollars and in some scenarios over a trillion—of conventionally scored tariff revenue is effectively offset by lost economic activity and lower tax bases, while households bear losses measured in the low thousands of dollars each on average and specific sectors face much larger price shocks [3] [2] [1] [6] [5].