Navigating Trump Tariffs: The Impact Pennsylvania and Philadelphia’s Economy
Summary
By definition, tariffs are taxes imposed on goods crossing borders. Historically, they have been used to protect domestic industries from foreign competition and as a tool in international relations. Under the America First “Fair and Reciprocal Trade Plan” (White House Fact Sheet), President Trump has imposed tariffs on some of the United States’ largest trading partners and allies. These tariffs primarily affect the construction, manufacturing, agriculture, and retail sectors, sparking trade tensions that could have far-reaching economic consequences, including market volatility and increased costs for businesses and consumers (NY Times).
Primer on Tariffs
The first step to understanding how and why tariffs affect us is to understand what they are and what they do. The United States began using tariffs in 1798, and their primary function was to serve as a major federal revenue source post-Revolutionary War. Following the Great Depression, tariffs became an economic engine and a way to influence economic policy, shifting from a tool for revenue to an instrument of trade negotiation.
Like anything, tariffs can be helpful, including protecting domestic production and shielding U.S. workers from unfair competition from specific trade partners.
Here are examples of the effect of tariffs on consumers and the economy:
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Higher prices on imported goods, reduced choices, and potential inflation are all effects of tariffs. Consumer production chains affected by tariffs will see prices rise with tariffs. For example, shoes become more expensive to produce if a tariff is levied on leather from a country that exports goods to the US.
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Tariffs on domestic industries can protect U.S. businesses from foreign competition, but they could also raise costs for manufacturers reliant on imported materials. Take the auto industry: even companies that manufacture in the US rely heavily on Canadian parts, steel and aluminum from Mexico, and electronic chips from Taiwan. Although some cars are made in the US and subsequently not subject to tariffs, the parts they’re made of are. The Trump Administration has already targeted industries such as steel, aluminum, and agriculture, citing national security and economic fairness.
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While tariffs generate funds for the imposing government, they still have the potential to reduce overall trade volumes as the cost of imported goods increases. In most cases, consumers will consume less as prices rise, which could lead to retaliatory measures that may further restrict trade, ultimately shrinking the overall volume of goods and services exchanged between trade partners. The Trump Administration has implemented reciprocal tariffs to match foreign tariffs on U.S. exports.
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Because tariffs increase the cost of imported goods, businesses tend to re-evaluate sourcing, which can lead to even higher production costs and supply chain disruptions. One retaliatory measure is countries imposing their own tariffs, essentially causing economic conflict between countries.
Overview of Trump Tariffs
The administration has justified recent tariffs as a means to reduce the U.S. trade deficit and counter what it considers unfair trade practices (White House Fact Sheet). It’s important to note that during Trump’s last presidency, tariffs placed on solar panels, washing machines, steel and aluminum, and a range of products from China brought in $79 billion in 2019—twice the value of two years earlier, the price of which was borne almost entirely by the American people. While the administration argues and continues to argue that tariffs are shouldered by the foreign companies that manufacture the goods, the reality is that economic analyses suggest the average American household has paid somewhere from several hundred up to a thousand dollars or more per year thanks to higher consumer prices attributable to the tariffs. (Via Brookings)
The same is likely to be true of the tariffs implemented during Trump’s second term. While the money from implemented tariffs is deposited into the general treasury and used as a source of revenue for the federal government to fund programs and services, it is not nearly substantial enough to pay down the national debt.
Primary Industries Impacted
Manufacturing, agriculture, retail, and construction are among the hardest-hit industries. Manufacturers that rely on imported steel and aluminum, such as automotive and construction companies, face rising costs. Farmers, particularly those exporting soybeans and pork, are affected by retaliatory tariffs, reducing their competitiveness in global markets. Retailers, especially those dependent on Chinese imports, may pass increased costs on to consumers. Meanwhile, the construction sector is experiencing higher material costs, which could slow down major development projects.
Impact on Pennsylvania and Philadelphia
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According to the U.S. Trade Representative, in 2024 Canada was the Commonwealth’s largest trading partner, exporting $14.5 billion in goods to Canada in 2024, representing 27 percent of the state’s total goods exports. The next largest trading partners for Pennsylvania are Mexico ($5.1 billion), China ($3.5 billion), Netherlands ($2.3 billion), and Japan ($2.3 billion). Trump’s tariffs directly impact Pennsylvania’s top three trading partners, threatening $23.1 billion in trade, based on 2024 data.
A deeper dive into trade with Canada highlights the immediate impact of the tariffs on the Commonwealth. The trade relationship encompasses a wide range of goods, with Pennsylvania exporting including industrial and electrical machinery, plastics, manufactured products, agricultural products, energy, and other commodities. Trade with Canada supports a significant number of jobs in Pennsylvania. Conversely, Pennsylvania imports significant volumes of mineral fuel, oil, and pharmaceutical products.
Pennsylvania's economy relies heavily on both manufacturing and agriculture, making it particularly vulnerable to the effects of tariffs. Steel and aluminum tariffs drive up production costs for local manufacturers, threatening their competitiveness and long-term viability. Similarly, retaliatory tariffs from other countries can significantly reduce income for Pennsylvania farmers, further straining the state's agricultural sector. These challenges extend across multiple industries, highlighting the widespread economic impact of trade policies on the Commonwealth.
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One of the true economic engines of Philadelphia and the region is the Port of Philadelphia. While not one of the largest ports in the US, it is the most productive port in the US, thanks to significant investments from the Commonwealth. It accounts for $30.5 billion in trade value and over 54,000 jobs in the Commonwealth. The imposition of tariffs with some of the country’s largest trading partners will have consequences for the Port that have not been fully tallied yet.
Additionally, Philadelphia has seen a construction boom in the past several years that could be brought to a halt due to increased costs of materials. This will be particularly true for Mayor Parker’s initiative to build affordable housing.
While not unique to Philadelphia, the impact on consumers and small businesses - such as retailers and restaurants - who rely on imported goods will have to pass on increased costs to the consumer, further weakening spending power. Philadelphia institutions like the Reading Terminal could be impacted.
In Conclusion
As we’ve seen, tariffs have complex and far-reaching implications for industries, businesses, and consumers alike. For Pennsylvania, particularly in key sectors such as manufacturing, agriculture, and construction, the effects can be profound. With industries like steel, aluminum, and agriculture facing increased production costs and retaliatory measures, the broader economic impact remains a challenge. For Philadelphia, rising costs at the Port, in construction, and in local businesses paint a picture of uncertainty for the future. It’s clear that while tariffs may serve as a tool for negotiating international trade, their impact is felt most acutely at home.
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