The International Monetary Fund (IMF) predicts that despite the escalation of the trade war leading to worsening prospects for economic growth and inflation in the United States, tariffs will help the US reduce its fiscal deficit in 2025.
According to the “Fiscal Monitor Report” released by the 191-country organization on Wednesday, the overall federal deficit in the US is expected to decrease to 6.5% of Gross Domestic Product (GDP) this year, down from 7.3% in 2024.
The report stated that the narrowing gap between expenditures and revenue “depends on higher tariff revenue.”
This result is calculated based on the IMF’s “reference point” prediction, taking into account tariff announcements as of April 4, including the “reciprocal” tariffs announced by the US on April 2, but excluding subsequent measures such as the 90-day tariff rate increase suspension and exemptions for smartphones, semiconductors, and other tech products.
The IMF stated that against this backdrop, with revenue growth of 0.7%, the medium-term deficit is expected to decrease to 5.6% of GDP.
The IMF acknowledges that one of the risks of its forecast is whether tariffs will lead to a broader slowdown in economic activity, which could potentially result in a decrease in other tax revenues (such as income taxes), offsetting the higher revenue from tariffs, “and does not take into account measures being discussed by Congress and budget coordination negotiations.”
The day before, the IMF warned that as US tariff measures spark a global trade war, the global economic growth outlook may further decline. Among them, the US and China are among the countries with the largest downgrades by the organization. The economic growth rates for the US this year and 2026 are expected to be 1.8% and 1.7%, respectively, down by 0.9 and 0.4 percentage points. It is expected that China’s economic growth rates for the next two years will be 4%, down by 0.6 and 0.5 percentage points, respectively.
The IMF stated that for the US, the trade war will generate supply shocks, driving up prices and dragging down productivity. For trade partners, tariff increases will translate into demand shocks, affecting output and prices.
In its report on Wednesday, the IMF pointed out that the magnitude of revenue growth from tariffs in the US is “highly uncertain.” On the one hand, there are significant differences between different products; on the other hand, the uncertainty of the tariff schedule itself plays a crucial role.
(This article referenced CNBC’s reporting)