Barely a day passes in which the news isn’t full of tariffs that are potentially – or actually – being put into effect by the federal government. But although the future is unclear, one thing is certain: Whatever the administration does it’s going to have impact on the states.

A new report by Justin Theal, released by the Pew Charitable Trusts on October 8, delves into this issue and comes up with some important findings. As the report says, “tariffs have the potential to significantly influence state budgets by increasing uncertainty in economic forecasts, raising the costs of public projects and disrupting revenue streams.”

Some of the themes of the report include:

• Manufacturing and trade heavy states are most vulnerable. “The exposure of a state’s finances can vary dramatically,” according to the report, “depending on how heavily the state relies on imported goods relative to its total economy, how much each state purchased in tariffed goods and how dependent it is on tax revenues that are sensitive to shifts in consumer spending.” 

  
  

  For example, “tariffs could significantly inflate production costs and disrupt local economies in Kentucky (where imports make up 32.3 percent of GDP), Michigan (24.5 percent), Tennessee (21.9 percent), Indiana (20.2 percent), Illinois (19.2 percent), Mississippi (13.6 percent and Alabama (12.1 percent).

• Tariffs haven’t hit state budgets – yet. “Although the risk of higher import costs is real,” the report states, “most states have not yet seen measurable increases directly tied to tariffs. That’s partly because state spending is often guided by long-term contracts that renew at different intervals, delaying immediate effects.”

• States must manage the risks. “Most states have proactively begun factoring economic uncertainty – including tariffs – into their revenue projections,” reports Pew, “At least half of the states recently revised down their expectations for fiscal 2026 according to a Pew analysis of state budget documents. In Michigan, officials lowered revenue projections by $320 million after forecasting weaker economic conditions, including the potential loss of bout 3,3000 auto sector jobs over the next three to five years because of tariff-related cost pressures.”

The report concludes that “the fiscal impacts will vary by state, but all policymakers will need to plan amid uncertainty. With limited ability to influence federal trade decisions, state officials are focused on controlling what they can – monitoring costs, protecting budget flexibility and preparing for multiple possible futures.

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