Trump places 25% tariffs on steel, aluminum imports. What will a trade war cost KY?
A move by President Donald Trump to place 25% tariffs on all steel and aluminum imports could leave Kentucky’s automakers in the crossfire of a resulting trade war between the U.S. and Canada, which is the Bluegrass State’s top supplier of aluminum and a major buyer of its finished motor vehicles.
Aluminum and motor vehicle parts numbered among Kentucky’s top two Canadian imports in 2024, with the state paying more than $2.6 billion across both categories, figures from Gov. Andy Beshear’s administration show.
As he flew to the Super Bowl aboard Air Force One Sunday, President Trump told reporters he planned to announced the tariffs Monday and follow up with another announcement of “reciprocal tariffs” against other countries later in the week. Previously, Trump paused 25% across-the-board tariffs on Canadian and Mexican imports until at least Saturday, March 1.
A separate across-the-board tariff of 10% on Chinese imports is expected to raise prices U.S. consumers pay for a wide variety of products, including clothing and electronics.
Here’s a look at what Trump’s tariffs could ultimately end up costing Kentuckians, with insights from University of Kentucky economist Michael Clark.
First, what is a tariff?
There’s a lot of confusion swirling around tariffs right now and how they work, but according to UK economist Michael Clark, the way to think about a tariff is as a tax placed on goods imported into a country.
Initially, the company or entity importing the product — not the country or company of origin — pays for the tariff. In the case of the U.S., the Treasury pockets the money.
In Kentucky, that could be an auto assembly plant importing parts from Mexico to manufacture vehicles. Mexico is one of the commonwealth’s top trading partners for exactly that reason. In 2023, motor vehicle parts topped the list of Mexican imports to Kentucky, amounting to roughly $2.8 billion that year, according to Trade.gov data.
While the company importing the tariffed goods initially pays the cost, it often doesn’t end there.
In the case of a 25% tariff on Mexican goods, as President Trump has proposed, the companies that run Kentucky’s auto assembly plants, such as General Motors, Ford and Toyota, would suddenly find themselves paying much more for those auto parts.
The company could decide to handle this in several ways, including:
Absorb the cost of the tariff and reap less profit as a result
Raise prices for the consumer
Negotiate with suppliers abroad in order to offset the cost of the tariff
Source from domestic suppliers or other foreign suppliers not subject to the tariff, though this often comes with additional costs and capacity challenges.
Often, the easiest (though not necessarily ideal) choice for companies to make is to simply pass the tariff cost along to the consumer in the form of higher prices.
Economist Clark notes this would help drive inflation and the prices that consumers see. Any negative impacts on production has the potential to hurt jobs.
“We would produce less, which could have an effect on jobs,” Clark said. “It’s difficult to say at this point how big of an effect that actually might be. Long term, that might not be a large effect in terms of the actual impact on jobs, because firms will adjust.”
Who are Kentucky’s top trading partners?
In 2023, Kentucky imported $72.4 billion worth of goods from trading partners around the globe, according to a state trade and economy factsheet from the U.S. International Trade Administration. According to that fact-sheet, Kentucky most depends on imports from Mexico, Japan, China, Canada and Singapore, in that order.
That same year, Kentucky exported a total of $40.2 billion to countries around the world. By far, Canada is Kentucky’s most important export partner, importing about $9 billion worth of goods from the state in 2023. Other top export partners include the United Kingdom, Mexico, France and China.
Before you draw any hard and fast conclusions about trade balance, you should know that data reflects initial imports, not where they end up. The same goes for exports from Kentucky, Clark notes.
“A company importing goods might have the goods initially sent to Kentucky, but they might then distribute them to other states,” Clark told the Herald-Leader in an email.
“The same applies to U.S. exports. Commodities like grain might come from several states” before they are ultimately exported by one, Clark added.
Top import sectors to Kentucky for 2023 include chemicals, transportation equipment (which can include vehicle parts and bodies), computer and electronic products and other goods.
In 2023, the Bluegrass State’s highest export fell into the broad transportation equipment category, with a total export value of roughly $19 billion that year.
Kentucky is a major hub for the auto industry and is home to four production facilities between Ford, Toyota and General Motors. Additionally, Kentucky is building electric vehicle battery plants in Shelby, Hardin and Warren counties.
“In total, no state in the U.S. produces more vehicles per capita than Kentucky,” a Kentucky Cabinet for Economic Development report states.
What could tariffs cost Kentucky?
According to data from the International Trade Administration, current as of 2021, Kentucky exports support more than 108,000 jobs here in the commonwealth. Some 140,000 jobs are provided by foreign-owned firms.
In a recent interview with NBC News, Beshear said the impact of Trump’s proposed tariffs would be “devastating” to the state’s economy, particularly its bourbon industry. The industry supports more than 23,000 jobs across the state, according to the Kentucky Distillers’ Association.
An analysis from the Tax Foundation, a tax policy think tank, estimates Trump’s proposed tariffs on Mexico, Canada and China, should they go into full effect, would amount to “an average tax increase of more than $800 per US household in 2025.”
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This story was originally published February 11, 2025 at 5:50 AM.