Fed Research Reveals Sharp State-Level Disparities in Consumer Exposure to Tariff Increases

Key Takeaways

• A new Federal Reserve Board staff note quantifies how direct consumer goods imports vary significantly by state, with California (13.8%) and New Jersey (12.7%) showing the highest consumption exposure versus Nebraska and Missouri (2.6% each).
• For financial institutions, this analysis provides a data-driven framework to assess geographic concentrations of tariff-related cost-of-living and credit risk across state-level lending, deposit, and investment portfolios.

Deep Dive

This FEDS Note, while not a binding regulatory directive, offers compliance and risk management teams valuable quantitative tooling for assessing geographic heterogeneity in tariff-related economic exposure. The authors construct a state-level measure of consumer goods import penetration using 2023 Consumer Expenditure Survey and Census import data, finding that import shares of consumption range from 2.6% (Nebraska, Missouri) to 13.8% (California), with a population-weighted national average of 7.1%. This granularity matters because it moves beyond prior national-level or income-decile approaches, enabling more precise state-by-state risk differentiation.

For compliance and risk functions, the key takeaway is the back-of-the-envelope incidence analysis in Section 3: a hypothetical uniform 10 percentage-point tariff increase would raise California's cost of living by approximately 1.4%, compared to only 0.3% in Nebraska. Institutions with concentrated exposure in high-import states (California, New Jersey, Texas, Pennsylvania) should consider this differential impact when conducting stress testing, credit risk modeling, and consumer affordability assessments, particularly for retail lending, mortgage underwriting, and credit card portfolios where cost-of-living pressures could affect borrower repayment capacity.

The note also identifies specific product categories (other durable goods, food and beverages, furnishings) and source countries (China, EU, Mexico) that collectively explain the majority of variance in state exposure, offering a more granular lens for scenario analysis. Institutions engaged in trade finance, supply chain lending, or sector-specific portfolios tied to these categories or countries should factor this heterogeneity into counterparty risk assessments and portfolio stress scenarios.

No specific compliance deadlines or mandatory requirements are attached to this publication, as it is an informational FEDS Note reflecting staff analysis rather than formal guidance or rulemaking. However, compliance and risk teams should treat this as a signal that tariff policy discussions remain active at the Federal Reserve and that state-level economic modeling is becoming more sophisticated. Recommended actions include: (1) incorporating state-level import exposure data into existing stress testing frameworks, particularly for consumer lending portfolios; (2) monitoring for any follow-on supervisory guidance that may reference this methodology; (3) reassessing geographic concentration risk in retail and commercial portfolios against the states identified as high-exposure; and (4) flagging this research for economic forecasting and CECL/credit loss provisioning teams who may need to adjust regional macroeconomic assumptions.

Source: Board of Governors of the Federal Reserve System