This piece was contributed by Brandon Brice, Economics Lecturer for the Cameron School of Business

The debate over tariffs is a contentious issue in today’s politics. Proponents argue that tariffs protect domestic industries from foreign competition and help preserve jobs, while opponents claim that they lead to higher prices for consumers and can provoke retaliatory measures from other countries. The current administration has been actively using tariffs as a tool in trade negotiations, aiming to address trade imbalances, protect key industries, and pressure foreign governments to adopt favorable policy changes (for instance increasing security at the U.S. border). However, economists are concerned that the ripple effects of these policies will be felt across various sectors of the economy, including in places like Wilmington.

To better understand this debate, we must understand that tariffs are taxes imposed by a government on imported goods which are purchased from other countries. These taxes are paid by the businesses and individuals that receive those imports. While tariffs can benefit certain sectors of the economy by making imported goods more expensive and thus less competitive, they often lead to higher prices for consumers and reduced revenues for businesses as the burden of the tariffs get split.  Additionally, tariffs often result in retaliatory measures from other countries making our goods sold to other nations more expensive for their businesses and citizens.  Economists are concerned that the cooling inflation realized in February may be reversed if price levels start to increase because of growing reliance on tariffs.

Specifically in Wilmington, the impact of tariffs will be multifaceted. According to the Bureau of Economic Analysis, New Hanover County has a relatively low share of its income, as measured by GDP, coming from manufacturing (0.05%) and practically 0% from agriculture. These are the two sectors most likely to be affected by tariffs. On the other hand, Wilmington's economy is heavily influenced by its port activities which import and export products from around the world.  One of the top three trading partners for exports leaving Wilmington is China, which has already begun retaliatory tariffs in response to U.S. tariffs imposed on their products.

Based on a report from the Institute for Transportation Research and Education, the ports of Wilmington and Morehead City move over 6.7 million tons of commodities each year in and out of North Carolina, with over 5,000 container gate moves per week. Specifically, the port of Wilmington handles significant volumes of wood pellets, forest products, woodchips, general merchandise, food, and many other commodities which could get targeted in a trade war. In total, Wilmington moves over $17.6 billion in goods annually weighing over 5 million tons through its port, which is more than four times the volume handled by Morehead City.  Many of these products could see demand diminishing as they become affected by tariffs.

The port activities in Wilmington provide over 78,000 full-time direct, indirect, and induced jobs, across the region, providing over $3.8 billion in salaries and wages. Additionally, these activities contribute over $589 million in tax revenue from business sales taxes, property taxes, and state corporate and personal taxes.  If port activity becomes increasingly affected by reduced trade volumes, these jobs, wages, and tax revenues will be impacted.

According to a recent Logistics Manager’s Index Report, inventory levels have been increasing substantially, driven by uncertainty and shifts in trade policies. Businesses in this uncertain environment are accelerating the movement of goods to avoid potential tariff costs they anticipate will continue rising down the road, leading to a growing demand for inventory space and pushing inventory and warehouse costs up to rates not seen since the COVID pandemic.  This is imposing increased costs on businesses in the short term.  In the long term, once this activity slows down and tariffs begin to reduce trade volume, Wilmington’s port economy will likely slow, and consumer prices will rise.

So, what’s the bottom line? While Wilmington's economy may not be heavily reliant on the sectors most likely to be affected by tariffs, the port activities and trade dynamics of the city play a crucial role. The imposition of tariffs can lead to increased costs for imported goods, affecting the overall trade flow, economic stability, and prices of the region. It is essential for businesses and policymakers to stay informed and adapt to the changing trade landscape to mitigate potential negative impacts. However, the uncertainty and unpredictability of constantly changing tariff policies will make this difficult and likely stifle economic activity, coinciding with the most noticeable consequence of tariffs, higher consumer prices.