That\u2019s my name for Trump\u2019s 10% universal tariffs plan augmented with additional 60% on Chinese imports. h\/t to Torsten Slok for the CBO letter<\/a>. I show implied effects on PCE deflator inflation, and GDP relative to January 2025 CBO projection<\/a>.<\/p>\n Figure 1:<\/strong> PCE deflator (bold black), CBO January projection (light blue line), CBO implied PCE deflator under Trump 10\/60 plan (orange square), WSJ mean November survey forecast (red triangle). Source: BEA via FRED, CBO Budget and Economic Outlook<\/a>, CBO letter<\/a>, WSJ, and author\u2019s calculations.<\/em><\/p>\n Interestingly, the January 2025 WSJ survey mean indicates a PCE level about the same as the CBO implied level \u2014 although this combines the tariff, deportation, and trade policy effects<\/a>.<\/p>\n What about GDP? I show the CBO projection, and the implied deviation.<\/p>\n Figure 2:<\/strong> GDP (bold black), CBO January projection (light blue line), CBO implied PCE deflator under Trump 10\/60 plan (orange). Source: BEA via FRED, CBO Budget and Economic Outlook<\/a>, CBO letter<\/a>, and author\u2019s calculations.<\/em><\/p>\n While CBO mentions in its letter the impact of uncertainty, it does not apparently incorporate them into the estimated effects.<\/p>\n The United States has implemented no increases in tariffs of this size in more than 50 years, so there is little relevant empirical evidence on their effects. As a result, CBO\u2019s estimates of the economic effects of large changes in tariffs are very uncertain. Nevertheless, the direction of the estimated effects is consistent with previous experience. The actual effects would depend on how businesses and consumers in the United States and other countries responded to the higher tariffs and the extent to which foreign governments responded with higher tariffs on U.S. exports. The estimates reported above reflect the expectation that U.S. trading partners Under Trump 1.0, EPU and trade policy uncertainty rose when the Section 232 and Section 301 tariffs were announced. Now, uncertainty is elevated even before the inauguration.<\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/01\/trumptariffs_pcedeflatorpix1.png\")
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would respond to the increases in tariffs with retaliatory increases of a similar magnitude.<\/p>\n<\/blockquote>\n
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