A U.S. trade war is likely to harm New York City’s recovering economy
Uncertainty around trade tariffs is likely to reduce U.S trade flows with the rest of the world.
Implications for New York City: the short-term effects of trade reduction are likely to lead to higher unemployment and lower economic growth in the city.
A 1.0 percentage point decrease in U.S. trade openness – the sum of imports and exports as a share of U.S. Gross Domestic Product (GDP) – is associated with a 0.63 percentage point increase in New York City’s annual unemployment rate, the equivalent of 27,061 additional unemployed people.
A 1.0 percentage point decrease in U.S trade openness may result in a 0.10 percentage point decrease in New York City’s real GDP growth.
Uncertainty around trade and economic policy is much higher than during the pandemic, and at its highest since 1985.
New York City is vulnerable to current and future tariff policies
U.S. cities where foreign trade plays an important role are particularly vulnerable to the recent tariff policies pursued by the President Donald Trump. In 2023, New York City imported over $103 billion of goods, mostly from Europe (31 percent), and exported over $106 billion of goods to its major trading partners like Canada and Switzerland (each of which account for more than12.0 percent of the city’s total exports), Mexico, Hong Kong, and the United Kingdom. This makes New York City the second-largest exporter city in the U.S. after Houston. As a result, changes in tariff policies and foreign trade flows are likely to have an important impact on the city’s economy.
Many economists expect tariffs to have inflationary effects that will harm consumers’ purchasing power, particularly in households at the bottom of the income distribution. In addition, firms are likely to scale back their investment plans due the highly uncertain environment created by the president’s volatile decisions on tariff policies. Both aspects are likely to put downward pressure on aggregate demand, leading to a decrease in output and employment at both the national and local levels.
To assess the potential impacts of tariffs on New York City’s economy, I estimate the short-term relationship between U.S. trade openness to the rest of the world, and the city’s unemployment rate and its Gross Domestic Product’s (GDP) growth. My findings suggest that a 1.0 percentage point increase in U.S. world trade integration is associated with a 0.63 percentage point decrease in the unemployment rate and a 0.10 percentage point increase in GDP growth rate in New York City. Precisely the reverse is indicated when the trends are reversed: a 1.0 percentage point decrease in trade integration would likely produce a 0.63 percentage point increase in the local unemployment rate and a 0.10 decrease in local GDP growth rate. This means that if tariffs reduce trade flows between the U.S. and the rest of the world, as it is expected to do, New York City’s unemployment rate is likely to increase while its GDP growth may decrease in the short run.
When the U.S. increases its trade with the rest of the world, New York City’s unemployment tends to decline
As President Trump announced on April 2, his protectionist trade policy through high tariffs on imported foreign goods aims to reduce the U.S. bilateral trade deficit with its trading partners. Tariffs create a disincentive for U.S. firms to import goods and services from abroad and for domestic consumers to buy them due their higher prices. This tends to reduce the U.S. overall imports of foreign goods. In retaliation, foreign countries may impose similar or higher tariffs on U.S. goods and services they import – as illustrated by China’s and the European Union’s responses – which tends to reduce the amount of goods and services the U.S. can export to the rest of the world.
Economists use the sum of imports and exports of goods and services of a country as a share of its GDP to determine its level of trade openness. The higher the level of imports and exports, the higher is the level of trade openness. In 2024, the U.S trade openness was at 25.02 percent, slightly higher than its 2023 level of 24.9 percent and significantly higher than its 1990 level of 19.8 percent.
Figure 1 shows the historical correlation between New York City’s annual unemployment rate (seasonally adjusted) and the U.S trade openness for 1990-2024 period. The correlation trend line exhibits a downward pattern, which shows that on average, a higher trade openness for the U.S. means a lower level of unemployment for New York City, and vice-versa.
Figure 1
To empirically test this correlation, I apply a simple model where U.S. trade openness acts as a predictor or determinant of New York City’s unemployment rate over the 1990-2024 period. The results show that in the span of one year – defined as short-term – a one percentage point increase in U.S. trade openness is associated with a 0.63 percentage point decrease in the unemployment rate in New York City over a one-year period. And as indicated earlier, these results are symmetric when trade openness increases (see technical appendix for the details of the model and results).
In 2024, the sum of U.S. exports and imports totaled $7.3 trillion while the U.S. GDP recorded $29.18 trillion. Exports accounted for 44 percent of total trade while imports accounted for 56 percent. A 1.0 percentage point decrease in trade openness in 2025 would represent $127.6 billion decrease in exports and $164.3 billion decrease in imports. This would be associated with an increase in New York City’s unemployment rate from 5.3 percent in 2024 to 5.9 percent in 2025, or approximately 27,061 additional unemployed people.
GDP growth in New York City benefits from higher U.S trade integration
To complement the results on the association between U.S. trade openness and New York City’s unemployment rate, I run the same model by replacing unemployment rate with GDP growth adjusted for inflation. Real GDP growth is an important indicator of the good health of an economy, as it measures the change in the total production of final goods and services in a given period. Due to limited GDP data availability over time at the city level, I analyze the relationship between U.S. trade openness and the city’s GDP growth over the 2001-2022 period. Figure 2 shows that on average, the higher the U.S. trade openness, the higher is real GDP growth in New York City as exhibited by the correlation trend line’s upward pattern.
Figure 2
As with the unemployment model, I also empirically test this correlation. The results suggest that a 1.0 percentage point increase in U.S. trade openness is associated with a 0.10 percentage point increase in New York City’s real GDP growth. However, because of the limited data, this relationship is not as strong and robust as the results on unemployment rate. Nevertheless, the positive correlation suggests that if trade flows decrease nationally due to tariffs and uncertainty, New York City is likely to experience lower real GDP growth.
Unprecedented levels of uncertainty led to U.S. GDP contraction in the first quarter of the year
President Trump surprised the world by imposing unusually high tariffs on both trading partners and non-partners. Most economists criticized this protectionist move for two main reasons. Strategically, they argued that effective industrial policy requires targeted tariffs as part of a broader economic policy. Empirically, they noted that the White House's method for setting tariff rates ignores services in the trade balance and overlooks country-specific tariff policies, making U.S. bilateral trade deficit figures misleading indicators of the overall trade balance.
The initial tariff rates announced by the White House were more recently lowered to a flat 10 percent rate on all imported goods for at least 90 days, with exceptions for a few goods like steel, aluminum, and auto parts (which all face tariffs of 25 percent). Countries purchasing oil or gas from Venezuela will face a 25 percent tariff rate as well. After an unprecedented tariff escalation with China, the U.S. announced on May 12 that it will lower rates on Chinese imports from 145 percent to 30 percent for 90 days, while China will lower rates on U.S. imports from 125 percent to 10 percent.
This reversal and the constant change of course constitutes a trade shock in itself. As Figure 3 shows, as of May 2025, uncertainty around trade policy is at its highest rate by far for the past 40 years.
Figure 3
As Figure 4 illustrates, uncertainty around Trump’s economic policy is higher than it was during the Covid-19 period and is at its highest since 1985, as of May 2025.
Figure 4
The uncertainty around economic and trade policy has pushed firms to significantly increase their imports before the implementation of tariffs. During the first quarter of 2025, a significant surge in imports – in addition to government spending decreases - offset growth in other components of the U.S. GDP (consumer spending and private investment). This led to a 0.3 percent contraction in U.S. GDP. Firms certainly rushed to increase their imports before the tariff implementation to avoid highly excessive taxes on their inputs. A similar phenomenon is to be expected for New York City, where many businesses depend on manufacturing and primary commodity imports from abroad. A potential U.S. recession combined with a reduction in trade flows due to tariffs and uncertainty is likely to reduce job prospects for New Yorkers while driving up their already high cost of living.