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US reconciliation act to raise real potential output: CBO
Real GDP is the nation’s economic output adjusted to remove the effects of changes in prices.
In the near term, the net effects of the 2025 reconciliation act, higher tariffs and lower net immigration on aggregate demand and the labour supply drive most of the changes in the agency’s forecast. The reconciliation act reduced taxes for the vast majority of US households.
US growth in 2026 would be 0.4 pp higher than in the last projections by the non-partisan CBO, reflecting the 2025 reconciliation act’s boost to consumption, private investment and federal purchases and the reducing impact of uncertainty about US trade policy.
In 2027 and 2028, the effects of reduced net immigration and the waning of the reconciliation act’s near-term boost to demand would drag growth.
In 2025, the growth of real GDP is projected to be 0.5 percentage points lower in CBO’s current projections than it was in the agency’s January 2025 projections, primarily because the negative effects on output stemming from new tariffs and lower net immigration more than offset the positive effects of provisions of the reconciliation act this year.
In 2026, the reconciliation act’s effects boosting growth dominate the effects slowing it that stem from the reduction in net immigration. Waning of the elevated uncertainty about trade policy provides modest support to economic growth next year as supply chains begin to adjust to the higher tariffs.
Growth next year would be 0.4 percentage points higher than in the previous projections, reflecting the reconciliation act’s boost to consumption, private investment and federal purchases and the diminishing effects of uncertainty about US trade policy.
In 2027 and 2028, the effects of reduced net immigration on the labour force and the waning of the reconciliation act’s near-term boost to demand would act as a drag on growth.
Partially offsetting those effects, an increase in domestic production, driven by higher tariffs, provides a boost to economic growth. As a result, real GDP growth in those years is roughly the same as it was in CBO’s January 2025 projections.
In addition to boosting aggregate demand in the near term, the reconciliation act will, in CBO’s assessment, raise real potential output by increasing the supply of labour, the capital stock and the and total factor productivity (TFP), the average real output per combined unit of labour and capital, excluding the effects of cyclical changes in the economy.
Meanwhile, the CBO estimated that President Donald Trump’s tariffs would shrink the US economy and add to inflation while reducing the federal deficit by $2.8 trillion.
In a published letter to Senate Democrats, the CBO estimated the budgetary and economic effects of tariff increases that were implemented through executive actions between January 6 and May 13.
The analysis found that shrinking of the US economy would vary but said that tariffs would reduce GDP growth by 0.06 per cent each year, adding that real GDP will be 0.6 per cent lower in a decade than CBO’s earlier forecasts.
“In CBO’s assessment, the changes in tariffs will reduce the size of the US economy—in part because of tariffs imposed by other countries in response to the increases in US tariffs. After accounting for that change in the size of the economy, CBO estimates that the changes in tariffs will reduce total federal deficits by $2.8 trillion,” the letter said.
“Reductions in investment and productivity stemming from higher tariffs will be partially offset by increases in resources available for private investment resulting from the reduction in federal borrowing. CBO estimates that, on net, real (inflation-adjusted) economic output in the United States will fall as a result,” it added.
Fibre2Fashion News Desk (DS)
The list of covered products include cars, fruits, rice, tobacco, alcoholic beverages, solid fuels and chemical products.
Turkiye has announced terminating retaliatory tariffs imposed in 2018 on several US imports in response to US tariffs on steel and aluminium imports enacted during President Donald Trump’s first term.
The decision followed talks with the US and consultations within the WTO framework.
Ankara has, however, not retaliated against the US decision in August to impose a 15-per cent tariff on Turkish imports.
The Presidential decree was published in the country’s official gazette.
“Following positive negotiations with the US and consultations within the framework of WTO [World Trade Organisation] Dispute Settlement Mechanism reports, the additional financial obligations applied to imports of certain US-origin products have been terminated,” domestic media quoted the Turkish Trade Ministry as saying.
President Tayyip Erdogan is scheduled to attend the United Nations General Assembly in New York this week ahead of a meeting at the White House with Trump.
Ankara has, however, not retaliated against the US decision in August to impose a tariff rate of 15 per cent on Turkish imports.
Turkiye will continue to work towards meeting an existing goal of $100 billion in annual two-way trade with the United States, it said. Trade volumes between the two countries stood at roughly $30 billion last year.
Fibre2Fashion News Desk (DS)
An example of this trade volatility is shown by US imports in Q1 2025 and Q2 2025, when volumes increased 30 per cent year-over-year (YoY) in March but then contracted to -2.8 per cent YoY by June, as highlighted in the latest ‘Fitch-20 Economic Monitor’.
With an average US effective tariff rate of 16 per cent, it expects global trade to slow further in the coming months. At a regional level, export volumes in the two months to June slowed in advanced economies and China but recovered in Korea and Australia. Exports from Mexico, a major trading partner of the US, were flat in Q2, Fitch said in its non-rating action commentary.
The global trade volumes fell in Q2 2025 after a Q1 surge driven by importers front-loading ahead of US tariffs, according to Fitch Ratings.
US import growth slowed from 30 per cent YoY in March to 2.8 per cent in June, with the average effective US tariff at 16 per cent.
Exports weakened in advanced economies and China, while India’s imports rebounded 11 per cent after a sharp Q1 decline.
Import growth slowed sharply in Brazil from 16 per cent in Q1 2025 to 4 per cent in Q2 2025, as past monetary tightening continues to weigh on domestic demand. In India, import volume growth rebounded from almost -13 per cent YoY in Q1 2025 to 11 per cent YoY in Q2 2025, while in Mexico it was flat.
Fibre2Fashion News Desk (SG)
“We are aligning our sanctions with our G7 partners, under the steer of the Canadian presidency,” von der Leyen said in an official statement announcing the sanctions.
The European Commission has announced the EU’s 19th package of sanctions against Russia.
These are sanctions on the energy front, targeting the financial loopholes that Russia uses to evade sanctions and new direct export restrictions for battlefield items and technologies.
The Commission is also working on a new solution to finance Ukraine’s defence efforts based on the immobilised Russian assets.
The Commission is banning imports of Russian LNG into European markets. “We have been saving energy, diversifying supplies and investing in low-carbon sources of energy like never before….Then, we have just lowered the crude oil price cap to $47.6. To strengthen enforcement, we are now sanctioning 118 additional vessels from the shadow fleet. In total, more than 560 vessels are now listed under EU sanctions,” she said.
Major energy trading companies Rosneft and Gazpromneft will now be on a full transaction ban. And other companies will also come under asset freeze.
“We are now going after those who fuel Russia’s war by purchasing oil in breach of the sanctions. We target refineries, oil traders, petrochemical companies in third countries, including China. In three years, Russia’s oil revenues in Europe have gone down by 90 per cent. We are now turning that page for good,” she said.
The Commission is putting a transaction ban on additional banks in Russia and on banks in third countries.
“We are stepping up our crackdown on circumvention. As evasion tactics grow more sophisticated, our sanctions will adapt to stay ahead. Therefore, for the first time, our restrictive measures will hit crypto platforms, and prohibit transactions in crypto currencies. We are listing foreign banks connected to Russian alternative payment service systems. And we are restricting transactions with entities in special economic zones,” she said.
The Commission is adding new direct export restrictions for items and technologies used on the battlefield. It has listed 45 companies in Russia and third countries that have been providing direct or indirect support to the Russian military industrial complex.
“We know that our sanctions are an effective tool of economic pressure. And we will keep using them until Russia comes to the negotiation table with Ukraine for a just and lasting peace,” she reiterated.
In parallel, the Commission is also working on a new solution to finance Ukraine’s defence efforts based on the immobilised Russian assets. With the cash balances associated to these Russian assets, Ukraine can be provided with a reparations loan, she noted.
“The assets themselves will not be touched. And the risk will have to be carried collectively. Ukraine will only pay back the loan once Russia pays reparations. We will come forward with a proposal soon,” she added.
Fibre2Fashion News Desk (DS)
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