Congressional Budget Office (CBO) Director Phillip Swagel said Monday that President Donald Trump’s tariffs have likely pushed inflation higher than CBO analysts had initially expected, adding a new layer of complexity to the debate over their economic impact.
Speaking on CNBC’s Squawk Box, Swagel explained that while Wall Street analysts have been bracing for tariff-driven price hikes for months without seeing them clearly reflected in consumer markets, CBO data suggests otherwise.
“Our analysis shows the economy has weakened since January, and normally that should be exerting downward pressure on inflation,” Swagel said. “Instead, we’re seeing upward pressure from tariffs.”
Despite near-term inflationary pressures, Swagel highlighted the CBO’s long-term assessment, which points to a surprising fiscal benefit. According to him, the tariffs are expected to reduce the U.S. budget deficit by $4 trillion over the next decade by generating new revenue for federal accounts.
“So $3.3 trillion of revenue and then $700 billion of averted debt costs,” he said. “That would be a big reversal in terms of the deficit.”
Still, the future of Trump’s tariffs remains uncertain. The Supreme Court is scheduled to hear oral arguments in early November, after the Trump administration appealed lower court rulings that found the president had exceeded his authority in imposing the levies.
Swagel described the outcome of that case as “one of the key uncertainties in the economy.” However, he pointed to the CBO’s latest September report, which suggests that the cloud of uncertainty will fade over time.
“The effects of policy uncertainty dissipate over time and disappear by the end of 2027, returning investment to what it would have been without the uncertainty in trade policy,” the report stated.
The debate over Trump’s tariffs evokes memories of earlier U.S. trade battles, but the current round differs sharply from his first wave of duties between 2018 and 2020. Then, Trump’s administration launched a tariff offensive aimed primarily at China, imposing levies on more than $360 billion worth of Chinese imports. Beijing responded with retaliatory tariffs on U.S. agricultural exports, forcing Washington into a costly subsidy program to bail out American farmers. At the same time, the EU hit back against U.S. steel and aluminum tariffs by slapping duties on iconic American products such as bourbon, motorcycles, and Levi’s jeans.
That earlier round of tariffs centered on specific trade grievances—such as China’s alleged intellectual property theft, state subsidies to strategic industries, and what Trump described as “unfair” auto tariffs from Europe. The disputes culminated in a “phase one” U.S.-China trade deal in 2020, but many duties remained in place, continuing to distort supply chains even as global markets sought relief from escalating tensions.
By contrast, the current tariffs extend well beyond targeted trade fights. They function as a broad revenue-generating mechanism designed not only to pressure foreign competitors but also to pour money into U.S. government coffers. That is the context in which the CBO’s $4 trillion deficit reduction projection stands out: unlike the earlier wave of tariffs, which raised questions about consumer costs and farmer bailouts, today’s tariff structure is being justified partly as a fiscal stabilizer in an era of mounting federal debt.
The legal backdrop is also different. In 2018–2020, most challenges came from affected industries and trade partners through the World Trade Organization, resulting in drawn-out arbitration. Now, the fight is moving into the U.S. judicial system itself, with the Supreme Court poised to rule on whether Trump overstepped his authority—a decision that could redefine presidential control over trade policy for decades to come.
Together, these contrasts highlight why today’s tariffs are viewed both as an inflationary headwind and a fiscal lifeline, a duality that separates them from Trump’s first wave of duties that were primarily about geopolitical leverage and industrial retaliation.
