Trump's Tariffs: Heavy Impact on Midwest and Southeast

The looming tariffs proposed by President Donald Trump are set to shake up the U.S. economy, with the Midwest and Southeast regions potentially bearing the brunt of the impact. According to a new analysis from the Richmond Federal Reserve, the proposed tariffs could raise the average effective tariff rate on goods coming into the U.S. from the current 2.2% to around 17%, causing widespread disruptions in manufacturing industries across these regions.

The analysis, published just hours before Trump's announcement, looked at import shares by industry across U.S. counties and estimated the potential impact of various tariff scenarios. The most aggressive scenario, which includes a 25% tax on imports from the European Union, would see average tariffs reach their peak. This would particularly affect auto and metal-intensive industries, as well as states like Michigan, Ohio, Indiana, and the Southeast.



The Richmond Fed economists, including bank vice president Sonya Waddell and senior economist Marina Azzimonti, warned that the proposed tariffs could raise input costs, disrupt supply chains, and result in higher consumer prices. "Ultimately, the proposed tariffs may raise input costs, disrupt supply chains and result in higher consumer prices, potentially outweighing any targeted employment gains in protected industries," they wrote.

The analysis also noted that while some industries might benefit from increased domestic production, the overall economic impact could be negative due to higher costs and disruptions. "Policymakers should carefully weigh these costs against intended policy goals and consider targeted measures to support the industries and communities most adversely impacted by these tariff changes," the economists advised.

The proposed tariffs are part of a broader shift in U.S. trade policy, with potentially large economic impacts varying across industries and regions. Earlier tariffs focused on China had only "muted" impacts as global supply chains adjusted. However, the new measures targeting Canada, Mexico, the EU, and automobiles threaten widespread disruptions across key U.S. industries.

The analysis also highlighted that adjustments to the tariffs would take time, and the immediate impact would fall particularly hard on auto and metal-intensive industries. When levies are applied to the EU, the impact changes "from a mostly regional issue to a national economic concern."

The proposed tariffs could also have significant long-term economic implications for the U.S. If the tariffs lead to a shift in production back to domestic soil, it could potentially create new job opportunities in the targeted regions. However, the overall economic impact would depend on how much of the cost increase is passed along to domestic consumers and producers.

In conclusion, while the shift in production back to domestic soil could potentially create new job opportunities and stimulate domestic economic activity, the overall economic impact of the tariffs would depend on how much of the cost increase is passed along to domestic consumers and producers. The analysis from the Richmond Federal Reserve suggests that the potential benefits of increased domestic production might be outweighed by higher costs and disruptions, leading to a net loss of jobs and output to the U.S. economy.