How Will South Dakota Be Impacted by Recent Tariffs?
Tariffs have become a focal point of discussion among economists, business leaders, and policymakers. To understand their potential impact on South Dakota, examining their historical role in U.S. trade policy and the reasoning behind their implementation is essential. From their early use as a tool for economic development to their modern application in trade negotiations, tariffs have shaped the nation’s economic landscape.
This article explores the history and purpose of tariffs, South Dakota’s trade dynamics, and the sectors most affected—particularly agriculture—by recent tariff announcements. It also examines how rising import costs could challenge local businesses and whether tariffs might make South Dakota’s exports less competitive in global markets. Finally, an assessment of the broader economic implications of these trade policies offers insights into how tariffs may influence the state’s economy in the years ahead.
The History of Tariffs
In 1789, the first Congress of the United States passed one of its first significant acts, which dealt with how the newly independent country would pay its recent wartime debt, which it had accumulated after gaining independence from Great Britain. The act was the Tariff Act of 1789, and its passing led to strong disagreements between Alexander Hamilton and James Madison. The arguments stemmed from the purpose and strategy behind tariffs. Hamilton saw tariffs as a revenue source, whereas Madison believed tariffs could promote trade reciprocity, using them to encourage nations, especially Great Britain, to adopt fairer trade practices and offer better terms in return.
After 1913, when the 16th amendment was ratified, establishing a federal income tax, the need for tariffs as a revenue source diminished. However, tariff rates increased after Congress passed the Smoot-Hawley Tariff Act of 1930, which protected American farmers and businesses from foreign competition. Shortly after, Congress passed the Reciprocal Trade Agreements Act of 1934, which gave the President the power to negotiate lower tariffs. Congress later gave additional power to the President with the passing of the Trade Act of 1973, which allowed the President to negotiate and implement trade agreements. These legislative changes marked a shift in U.S. trade policy, moving from high protective tariffs toward greater trade liberalization. Over time, this approach expanded global trade and integrated the U.S. economy into international markets.
The Three Reasons for Tariffs
A president may implement tariffs for one or all of three reasons, which economists call the ‘Three Rs’ of tariffs: Revenue, Restriction, and Reciprocity. Revenue refers to using tariffs as a source of income for the government, helping to fund public programs and reduce national debt. Restriction involves imposing tariffs to limit the importation of certain goods, protecting domestic industries from foreign competition. Lastly, reciprocity is when the President uses tariffs to encourage fairer trade practices, compelling other nations to offer better terms in trade agreements in exchange for reduced tariffs or favorable policies.
In recent years, both the Trump and Biden administrations have used tariffs for two primary purposes: restriction and reciprocity. In Trump’s first term, he imposed tariffs, including a 25% tariff on steel and 10% on aluminum, to protect U.S. industries, particularly from China. His broader trade war with China focused on addressing unfair trade practices. The Biden administration continued these tariffs and explored import restrictions on semiconductors and electric vehicles to protect domestic manufacturing. Tariffs were also used for reciprocity, pressuring nations to improve trade terms. The U.S.-China trade deal leveraged tariffs to secure commitments from China. At the same time, the United States–Mexico–Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA), with tariffs on steel and aluminum lifted in exchange for changes with Canada and Mexico.
During his second term, President Trump has addressed all three reasons for tariffs. He has cited tariffs as a tool to generate government revenue, punish unfair trade practices by adversaries, and encourage the return of U.S. manufacturing. However, while these goals may align with broader economic nationalism, they carry meaningful local trade-offs. For South Dakota, where input costs and export access for specific sectors are susceptible to trade policy, implementing broad tariff regimes may yield unintended consequences.
South Dakota’s Trade Landscape
South Dakota ranks among the lower U.S. states in terms of both imports and exports. In 2024, the International Trade Administration ranked the state 47th in exports and 49th in imports. As illustrated in Figure 1, South Dakota’s trade balance is notably smaller than that of its neighboring states. In 2024, South Dakota exported $2.1 billion and imported $1.7 billion. The state’s gross domestic product (GDP) stood at $76 billion during the same period. In percentage terms, for 2024, imports into South Dakota accounted for 2.2% of the state’s GDP, while exports made up 2.8%.
Figure 2 depicts the trend in South Dakota’s imports and exports, which shows annual data from 2008 to 2024. Following the Great Recession, exports and imports declined, likely due to a global slowdown in trade. Since then, there has been a gradual increase in trade activity until 2020. From 2020 to 2022, South Dakota saw a significant surge in trade, with imports rising from $1.3 billion to $1.9 billion and exports increasing from $1.4 billion to $2.4 billion. However, after 2022, South Dakota experienced a slight decline in trade, with exports decreasing by 12% in 2024 compared to the previous year.
What Does South Dakota Primarily Import and Export?
Figures 3 and 4 illustrate South Dakota’s top 10 imports and exports using the North American Industry Classification System (NAICS). NAICS is a standardized framework for classifying industries across the United States, Canada, and Mexico. It assigns a four-digit code to each industry group, organizing businesses within broader subsectors to facilitate statistical analysis and economic research. For a more detailed breakdown of the industries included within each four-digit NAICS code, please use the NAICS search tool at https://www.naics.com/search/. By entering a specific NAICS code, users can view a comprehensive list of the industries that fall under each code, providing a clearer understanding of South Dakota’s trade dynamics.
As shown in Figure 3, three out of the top five imports in 2024 for South Dakota are directly tied to the agricultural and ranching sector. These imports, including machinery, chemicals, and fertilizers, support the state’s farming and ranching industries. Tariffs on these goods could significantly increase the cost for South Dakota’s farmers and ranchers, raising operational expenses. Since these industries rely on these imports to maintain productivity, any disruptions in their availability or price could reduce profit margins and make it harder for producers to remain competitive in both national and global markets. Given the state’s dependence on agriculture, tariffs on critical imports could have a broad impact on the local economy, potentially hindering the growth of the agricultural sector.
Figure 4 shows South Dakota’s top 10 exports in 2024, with agricultural products, including animal slaughtering and processing, grain and oilseed milling products, and animal foods, making up a significant portion of the state’s export activity. The figures highlight that South Dakota is a key player in the agricultural export market, with categories such as animal processing and grain milling contributing heavily to export revenues. However, the imposition of tariffs can impact the state’s export market in two ways.
First, tariffs can exert upward pressure on the value of the U.S. dollar by reducing imports and increasing demand for dollars, making American goods more expensive for foreign buyers. This appreciation was widely anticipated by economists following the tariff announcements. However, as of 2025, this has not materialized—largely due to downward revisions in U.S. growth forecasts stemming from the scale and scope of the tariffs. As shown in Figure 5, the Wall Street Journal Dollar Index has declined since the start of the year, signaling a weaker dollar relative to a basket of major currencies. While a depreciating dollar can temporarily support U.S. exporters by improving price competitiveness, including for South Dakota’s agricultural producers, this benefit may be short-lived if broader trade tensions persist.
Second, retaliatory tariffs from trading partners directly suppress demand for U.S. exports. On April 11, 2025, for instance, China announced it would raise tariffs on select American products to 125%. This escalation poses serious risks to South Dakota’s export sectors—particularly processed meats, grains, and animal feeds—by eroding their price advantage abroad and threatening revenue streams for producers across the state.
South Dakota’s Main Trading Partners and Tariff Rates
Figures 6 and 7 highlight South Dakota’s top import and export markets in the year 2024 by trade volume. As shown in Figure 6, Canada, China, and Brazil were the state’s most significant sources of imports, with Canada leading at $639 million, followed by China at $257 million and Brazil at $256 million. On the export side, Figure 7 shows that Canada remained South Dakota’s most considerable trading partner, receiving $955 million in exports, followed by Mexico at $419 million and China at $153 million.
Tariffs significantly impact these imports and exports, especially when factoring in the effective tariff rates under USMCA. According to the Wells Fargo Tariff Tracker (as of May 12th, 2025), Chinese imports face an estimated effective tariff rate of 32%. However, tariff rates for Canadian and Mexican imports are more nuanced. In 2024, 30% of Canadian imports—excluding autos and parts—complied with USMCA regulations and benefited from lower tariffs, while 70% did not comply with USMCA. Therefore, these goods would face a 25% tariff, resulting in an estimated effective tariff rate of approximately 12%. Additionally, specific Canadian goods, such as steel and aluminum, are subject to a 25% tariff, while energy products face a 10% tariff. Similarly, 38% of Mexico’s imports—excluding autos and parts—met USMCA compliance standards, while the remaining 62% were not compliant, making them susceptible to a 25% tariff, leading to an estimated effective tariff rate of 9%.
When considering effective tariff rates, it is necessary to recognize that agricultural products are more likely to qualify for USMCA compliance. Under the USMCA, goods must meet specific rules of origin, requiring a certain percentage of their components to be sourced from the U.S., Canada, or Mexico to receive preferential tariff treatment. These rules ensure that products benefiting from the agreement are primarily produced within the member countries, supporting domestic industries while fostering regional trade. While many agricultural products easily meet these origin requirements, more processed or value-added goods often face stricter thresholds, requiring a higher share of inputs from the USMCA region to avoid tariffs.
In addition to existing measures, a new round of tariffs was released on “Liberation Day,” April 3rd, 2025, marking a pivotal shift in trade policy. While implementation is paused for 90 days as of April 9th, the administration has signaled that this delay is temporary, pending further evaluation of domestic supply chain impacts. Notably, some high-consumption consumer electronics—including phones, computers, and other digital devices—may be granted temporary exclusions from the tariff schedule. If implemented at their current rates on July 8th, 2025, these tariffs are expected to affect trade flows substantially and could reshape sourcing decisions in multiple sectors.
Recent developments may further soften the projected impact of these tariffs. On May 12, 2025, the U.S. and China reached a temporary agreement aimed at easing tariff-related pressures during ongoing trade negotiations. Under this 90-day arrangement, the U.S. reduced its effective tariff rate on Chinese imports from at least 145% to 30%, while China cut its tariff rate on U.S. exports from 125% to 10%. Although temporary, this reprieve offers meaningful short-term relief—particularly for South Dakota’s agriculture sector, which relies heavily on access to the Chinese market for products such as processed meats, grains, and animal feeds. If the agreement is extended or leads to longer-term adjustments, it could bolster export volumes during the growing season and cushion the blow from earlier tariff announcements.
Assuming 2024 import levels and applying current effective tariff rates—without adjusting for lower rates due to a high share of agricultural imports—the additional cost of tariffs on Canadian imports would have been approximately $77 million. For Mexican imports, the added cost would have been around $9 million. Meanwhile, imports from China, which currently face a 32% tariff, would have incurred an estimated $82 million in additional costs. However, if a deal is not reached with China and the tariff rate resets to 145%, an estimated $370 million in extra expenses from China alone would be incurred by South Dakota businesses and consumers. Altogether, these tariffs would currently raise the price of South Dakota’s imports by roughly $296 million, significantly increasing expenses for businesses that rely on these goods.
Importantly, however, the exceptionally high 145% tariff rate—or even the paused rate of 32% — on Chinese imports may not materialize at full scale. Such steep tariffs could render many products economically unviable, forcing importers to either absorb costs or seek alternative supply chains. In practice, businesses are likely to respond by diversifying suppliers, shifting away from heavily tariffed goods, or renegotiating sourcing contracts, which could mitigate the actual tariff burden. As a result, while the projected $82 million in added costs for Chinese imports reflects a theoretical maximum, the realized impact is expected to be lower as the market adjusts. The full calculation by country for the estimated cost from tariffs to South Dakota using 2024 import data is illustrated in Table 1. However, Table 1 likely overstates the actual financial effect. In practice, many businesses are expected to adapt by modifying their sourcing strategies, switching to alternative suppliers, or implementing supply chain adjustments that can reduce the actual tariff burden. In addition, future trade deals could lower this estimate.
An Uncertain Outlook
The upper estimate of $296 million in tariff-related costs on South Dakota’s imports represents a substantial economic burden, particularly for a state with deep reliance on agriculture and manufacturing. These sectors depend heavily on imported machinery, fertilizers, and intermediate goods, and such a sharp increase in input costs could compress margins, reduce competitiveness, and ultimately raise prices for consumers.
However, the recent 90-day reprieve in U.S.–China tariffs—reducing the tariff rate from 145% to 30%—offers a window of opportunity for South Dakota’s exporters. If maintained, this measure could improve the affordability of South Dakota’s exports abroad, particularly in China, where retaliatory tariffs had previously reached 125%. The concurrent drop in China’s tariffs on U.S. goods to 10% further strengthens this temporary opening for key agricultural products.
Additionally, the May trade deal with the United Kingdom, while narrow in scope, signals a potential shift in U.S. trade policy toward greater strategic alignment with key allies. If further trade barriers are eased with the U.K. or other partners, South Dakota businesses could see expanded market access and reduced costs in sectors ranging from automotive parts to value-added agriculture.
Ultimately, the broader impact of tariffs will depend on how well South Dakota’s trade flows comply with USMCA rules, the permanence of recent trade concessions, and the trajectory of future negotiations. While the risk of escalating tariff burdens remains, these recent developments provide cautious optimism for relief and adaptation within South Dakota’s trade-dependent industries.
