In early April, the Trump Administration issued an executive order drastically increasing tariff rates—the tax paid by U.S. businesses and consumers on imported goods. While many Americans believe that implementing tariffs on our trading partners will instantly bring offshored manufacturing jobs back to the U.S. and boost profits for U.S.-based companies, this is a misconception. In reality, these tariffs will raise costs for American businesses that rely on imported parts, materials, and other critical inputs. If these added costs are pushed onto consumers, who will also face higher costs from goods produced entirely out-of-the-country, the resulting inflation and economic slowdown could have major implications for Colorado, including its public finances. TABOR complicates things further.
Gross Domestic Product (GDP) data released this week from the Bureau of Economic Analysis suggests American companies and consumers have been bracing for the impact, stocking up on foreign-made goods before President Trump’s tariffs took effect. Businesses in particular have been “front-loading” their inventory in anticipation of tariffs, which for most global trading partners are temporarily frozen at 10% until early July. After that, higher tariffs will cost U.S. companies more for the things they rely on —textiles, food, equipment, machinery, etc. These increased costs may come at the expense of jobs. Consumers, too, have bumped up their big-ticket purchases—cars, washing machines, and other durable goods—but overall consumer spending is waning. The large increase in imports necessarily contributes negatively to GDP, which contracted at a 0.3% annualized rate in the first quarter of this year. What’s most interesting about this decline is, first, this was the first economic contraction since 2022, and, secondly, net exports —the difference between what the US exports and imports—saw the largest quarterly decline since records began in 1947.
Source: BEA News Release: Gross Domestic Product, 1st Quarter 2025 (Advance Estimate)
But the stockpiling has since subsided, and U.S. consumers and businesses are starting to pull the breaks. With imports getting more expensive, cargo shipments are starting to slow. Tariff uncertainty is also driving CEO confidence to new lows. An April survey of 220 CEOs showed confidence falling to its lowest level since 2012, with 67% of CEOs saying they do not approve of the tariffs and 76% saying they would negatively or very negatively impact their businesses this year. And what do actual manufacturing workers think of the tariffs? According to a recent survey by the Washington Post, most think they will harm them.
As Ryan Gedney has discussed, Colorado imported some $16.8 billion in goods in 2024, representing just 0.5% of total U.S. imports that year. We exported $10.5 billion worth of goods, or $6.3 billion less than the state imported last year. This value of goods exported represents just 2% of Gross State Product (GSP), the state-level equivalent of GDP. So, while international trade is not as crucial to Colorado as it is to other states (exports represent over 31% of state GSP in Louisiana, for example), increased costs of imported goods paired with the possibility of declining exports could spell trouble.
Tariffs will increase costs not just for consumers and businesses—state and local governments will also feel the strain. Public works projects, in particular, will become more expensive due to higher prices for imports like steel, aluminum, and construction machinery. At the same time, inflation-driven interest rate hikes will raise borrowing costs for local governments in Colorado, making it more expensive to finance capital projects like roads, schools, and recreation centers.
TABOR sets a limit on how much the state can spend each year, based on inflation and population growth. So when inflation goes up, the spending limit goes up too—even if the state doesn’t get more money from taxes. If inflation is high but economic growth slows, Colorado may fall short of the legal spending limit, but still struggle to fund essential services as costs rise. This dynamic played out after the early 2000s recession, when slow revenue growth lagged behind rising expenses, forcing cuts in higher education and public health. And if consumers cut back their spending and business activity contracts, key revenue streams like income and sales taxes will decline, compounding fiscal stress.
Importantly, the Trump Administration’s rhetoric surrounding tariffs is that they will boost domestic production, spurring innovation across the states. Tariffs create a space where improvement COULD happen, but this crucially depends on an environment of innovation and real investment. The Trump Administration is doing the opposite of this by eliminating funding to universities, who do a lot of research and development in this country. Even if U.S. and Colorado-based corporations gain market power through protectionism, it’s unclear—and likely doubtful —that they will reinvest those gains in local spending or R&D.
Trade policy will continue to shape the national economy in the near term, with tariffs likely to weigh heavily on both employment and GDP as their effects deepen. Faced with higher production costs, Colorado businesses have only a couple options: pass these higher costs onto consumers or cut costs elsewhere, including reduced hiring or layoffs. And consumers, whose spending represents two-thirds of the entire economy, may decrease their spending—reducing sales and profits for all sorts of businesses, not just the ones who faced higher costs due to tariffs. For Colorado, the challenge is not just economic but institutional: the state’s ability to respond to any of this is constrained by TABOR, which limits revenue flexibility precisely when adaptability is most needed. Without reform, Colorado remains reactive —vulnerable to national shocks and unable to cushion the blow.
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