The Corner

Economy & Business

CBO: Trade War Will Reduce Household Income by 0.4 Percent

From a new report:

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. 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. In CBO’s projections, the tariffs also reduce real income for the average U.S. household by 0.4 percent by 2020.

That projected reduction in U.S. output is partly explained by changes to U.S. trade flows. By 2020, in CBO’s projections, the changes to tariffs since early 2018 lower real U.S. exports by 1.7 percent and lower real imports by 2.6 percent. The negative effect on output from reduced exports is partly offset by an expected boost in the production of domestic goods to replace a small portion of the forgone imports.

The remainder of the reduction in U.S. output can be explained by declines in real consumption and investment.

The median household income is roughly $60,000, so crude back-of-the-envelope math puts the typical cost somewhere around $240 per year. (The report says the effect on the average household income, which is skewed by the highest earners, will be $580.) This is consistent with a lot of other work: The trade war isn’t exactly devastating to the typical American family’s budget, but the costs add up over time. $240 will buy you an Xbox One.

Hat tip to Kyle Pomerleau.

Update: Since this was originally posted I’ve added the average cost to a household, to go along with the median I calculated.

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