- Arizona’s economy is closely tied to international trade, particularly with Mexico and Canada.
- While tariffs could generate revenue for the U.S. government, they may also lead to inflation and economic slowdown.
- The long-term impact of tariffs on U.S. manufacturing remains uncertain.
Tariffs and trade have dominated headlines in recent days, with President Trump slapping import taxes on Mexico, Canada and China — three of Arizona’s top international partners — only to delay them on Mexico and Canada.
If the higher duties are made permanent, almost everyone could be affected in some way, from higher prices on produce at the supermarket to potential layoffs for family members or friends. Here are some key issues, including those that involve Arizona:
What are tariffs?
They are taxes or duties paid on imported goods when they enter a country. Importers are responsible for paying tariffs, though the costs could be shared by foreign sellers or passed along to consumers, depending on market conditions and trade agreements.
The U.S. has imposed tariffs almost since its founding as a nation, with policies differing and tariff reductions often achieved through treaties such as the United States-Mexico-Canada Agreement and, before that, NAFTA or the North American Free Trade Agreement.
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Who would receive the money raised by tariffs?
The U.S. government could reap a windfall from the increased revenue — money that can be used to support other spending and reduce the federal deficit.
The additional revenue could approximate $1.5 trillion over the next decade or so, assuming the new proposed levies of 25% on Canadian and Mexican imports and the 10% rate on those from China are made permanent, estimates the Committee for a Responsible Federal Budget.
How close are trade ties between Arizona and those nations?
They’re very close.
Arizona exported $28.9 billion to foreign nations and imported $35.4 billion as of 2023, according to the International Trade Administration of the U.S. Department of Commerce. Mexico ranked as the top export market for Arizona goods with purchases worth $8 billion, followed, in order, by Canada, the Netherlands, China and the United Kingdom. Mexico also ranked as the top source of imports coming here, supplying $11.8 billion of goods, followed by China, Canada, Taiwan and Japan.
Computers and electronic equipment represented the top category for both exports and imports connected to Arizona. Other big export categories included transportation equipment and minerals. Other big import categories included machinery along with electrical equipment, appliances andcomponents.
Arizona and the U.S. overall run a trade deficit — is that good?
It might not seem like an optimal situation but it reflects the fact that Americans buy more than they sell to foreign competitors and they consume more than they produce, partly because the U.S. is a relatively rich nation with a consumption-focused population.
Also, most Americans don’t want jobs in laborious, low-wage manufacturing. A relatively strong dollar also has played a role, by making foreign imports cheaper, and there are other factors.
“We want to buy more stuff from them than they do from us . . . and fundamentally Americans want to consume more than they can produce,” said Dennis Hoffman, an economist in the W.P. Carey School of Business at Arizona State University. “Thus, a trade deficit.”
At any rate, the U.S. has consistently run trade deficits since the 1970s, yet the country is clearly more prosperous than it was back then.
Are foreign nations more dependent on U.S. trade than the other way around?
Yes, and this has been a negotiating point that President Trump has been trying to exploit.
Not only are Canada, Mexico and China more dependent on trade with the U.S. than vice versa but their economies have been weaker lately, making them more vulnerable to sliding into a recession if a trade war erupts.
The most recent Gross Domestic Product readings show annual growth of 1.5% in Canada and 0.6% in Mexico, reported David Kelly, chief global strategist at J.P. Morgan Asset Management. That compares to fourth-quarter economic growth of 2.3% in the U.S.
But Americans still could face repercussions. For example, Kelly estimates the higher proposed tariffs on those three nations, if they’re made permanent, could raise U.S. inflation by around 1% annually, making it harder for Trump to achieve his goal of bringing down prices paid by consumers.
How many Arizona jobs are tied to exports?
More than 6,000 Arizona companies exported products as of 2021, according to the International Trade Administration. Around 88% were smaller entities employing 500 or fewer workers. More than 75,000 Arizona jobs were supported by exports, though that was a modest slice of the nearly 3.2 million total statewide jobs in 2021.
If trade tensions persist, or worsen, could that cause a recession?
Yes, but we aren’t there yet.
“While a prolonged, multi-front trade war could certainly cause a U.S. recession and significant stock market losses, it is way too early to give up on the American economy,” wrote Nicholas Colas, co-founder of DataTrek Research, after President Trump delayed the planned 25% tariffs on Mexican and Canadian imports. GDP growth remains reasonably strong, he noted, and so does the jobs situation with a modest 4.1% U.S. unemployment rate as of December — and 3.8% in Arizona.
If higher tariffs stick, at least in some form, will Americans be better off?
Probably not.
If consumers must pay more for imported goods, they will have less money to spend or invest in other ways, noted Hoffman at ASU. That would hurt the many businesses that depend on consumer spending, while companies that import products will face higher outlays if they can’t fully pass along these costs.
“Tariffs simply make us all poorer,” Hoffman said.
In addition, the uncertainty surrounding tariffs could cause many businesses to delay investments and confound their planning, slowing economic growth.
Eventually, though, higher tariffs could result in a resurgence of U.S. manufacturing, which already has been happening for various reasons. The most striking example of this in Arizona is the massive new campus of Taiwan Semiconductor Manufacturing in north Phoenix, a $65 billion foreign investment that’s now churning out the smallest and most technologically advanced chips made on U.S. soil.
Reach the writer at russ.wiles@arizonarepublic.com.
