Tariffs could adversely affect Illinois’ businesses and families
A tariff is simply a sales tax on items brought into the United States from other countries. They are paid by companies that purchase the imports, who proceed to pass on the costs to consumers in the form of higher prices.
The theory behind tariffs is that they level the playing field for U.S. products and workers. However, many of the goods and materials that American families and businesses rely on are imported from foreign countries — either because consumers prefer their price and quality or because there is not a sufficient domestic supply. This is true of everything including food, cars, sneakers, iPhones, steel and semiconductors.
In February, tariffs on Chinese imports were increased by an additional 10%, while steel and aluminum were hit with 25% tariffs. Current proposals have been to impose 25% tariffs on nearly all imports from Canada and Mexico, and 10% on Canadian oil and gas. Those tax hikes on Canadian and Mexican products were delayed until at least March 1.
If implemented in full, these tariffs would upend supply chains and increase prices. Even the Trump administration has acknowledged that they would cause “some pain” for consumers, affecting fruits, vegetables, grain, meats, chicken, beer, lumber, automobiles, manufactured parts, and oil and gas.
Economists expect the 10% to 25% tax hikes would increase household costs between $800 and $1,200 per year. This would add to inflation, which worsened again last month.
These tariffs would have outsized impacts on Illinois. That’s because, while Illinois generates 4% of all U.S. economic activity, we account for 7% of total imports in the country.
In 2023, Illinois imported $223 billion in goods and commodities. More than half of that came from Canada ($66 billion), China ($44 billion), and Mexico ($18 billion). According to the Department of Commerce and Economic Opportunity, most of our imports from Canada were oil and gas ($47 billion). Back-of-the-envelope calculations reveal that 25% tariffs on Canadian and Mexican goods, 10% on Canadian oil and gas, and 10% more on Chinese products would cost Illinois’ businesses and families more than $18 billion annually. For perspective, that’s more taxes than Illinois collects in state sales tax revenues from retailers every year.
Industries like manufacturing and construction could be hit particularly hard. Illinois’ manufacturing sector — it alone adds more to America’s economy than all of Idaho — is a major importer. Tariffs on steel, parts, and energy increase costs for manufacturers and reduce their output. Similarly, while we have a housing shortage, tariffs on steel and lumber surely will not lower residential construction costs.
It is true that tariffs can be useful tools to spur investment in U.S.-based industries and protect American workers from unfair competition by low-wage countries with no labor, environmental or safety standards. Domestic manufacturing workers should not lose jobs to child laborers in Chinese sweatshops, for example. But we must recognize that the moral and economic development imperatives served by tariffs would not reduce costs paid at checkout counters.
Tariffs are especially inefficient if their intent is simply to raise revenue to offset federal deficits created by policies that shield corporations and high-income individuals from paying taxes. This would be a regressive change, with working-class Americans paying more to finance the tax cuts the government is giving to their bosses.
Ultimately, for tariffs already in effect and those that may be coming, Illinois is staring down tax hikes on one-tenth of our $1.1 trillion economy — or more than $100 billion. All of this would occur during a business expansion. Last year, Illinois’ economy grew by 4% and we added more residents than any Midwest state.
We all want American industries and workers to thrive. Yet, at a time when Illinois is expanding while families are struggling to keep pace with inflation, tariffs — and retaliatory actions by Canada, Mexico, and China — pose huge downside risks that could disproportionately impact Illinois’ economy, causing our businesses and working families to fall even further behind.
• Frank Manzo is an economist at the nonpartisan Illinois Economic Policy Institute.