IMF says US deficit will drop as a result of Trump’s tariffs

In a report released Wednesday, the IMF forecasted that the overall federal deficit will fall to 6.5 percent of gross domestic product next year, down from 7.3 percent in 2024. The report attributed the decrease in the gap between spending and revenue to "higher tariff revenues.”

The forecast is based on the IMF’s “reference point” projections, which include tariff announcements made as of April 4. That includes the reciprocal tariffs announced on April 2 but excludes later developments, such as the Trump administration’s 90-day pause and exemptions on products like smartphones, semiconductors, and other technology-related goods, a report by CNBC noted.

The IMF expects the deficit to decline to 5.6 percent of GDP in the medium term, with federal revenues rising by 0.7 percent. However, the report also emphasized that “the magnitude of the tariff revenue increase is highly uncertain.” One key variable is consumer behavior in response to higher prices triggered by the tariffs. The IMF also warned that tariffs can reduce economic activity, which in turn may lower other forms of government revenue, such as income tax collections, potentially offsetting gains from tariffs.

“These projections are highly uncertain and do not account for measures under discussion in Congress, under budget reconciliation,” the IMF stated.

Despite the projected deficit reduction, the US national debt continues to climb. The IMF warned that this could lead to higher long-term interest rates and increase the cost of servicing the debt.

“Specifically, an increase of 10 percentage points of GDP in U.S. public debt between 2024 and 2029 could lead to a 60-basis-point rise in the 5-year forward to 10-year rate,” the IMF wrote.