Trade Tensions Simmer, Fueling Manufacturing Uncertainty

Connecticut manufacturers are navigating uncertain times amid simmering trade tensions between the U.S. and three of the state’s largest trading partners.

A trade war with Canada and Mexico was averted at the last minute Feb. 3, with the Trump administration pausing tariffs scheduled to take effect Feb. 4.

The White House announced 25% tariffs on Canadian and Mexican imports and 10% levies on Canadian oil, natural gas, and electricity imports over the weekend, sparking retaliatory measures.

While those sanctions were suspended for 30 days, an additional 10% tariff on Chinese imports did take effect, with China then imposing 10%-15% tariffs on U.S. coal, natural gas, farm machinery, and other products and restricting the export of some minerals.

Canada, Mexico, and China account for more than a third of the products brought into the U.S., supporting tens of millions of American jobs—including hundreds of thousands of Connecticut jobs.

Those 25% tariffs on Canadian and Mexican goods would add an estimated $144 billion annually to the cost of manufacturing in the U.S. according to the National Association of Manufacturers.

Economic Harm

U.S. Chamber of Commerce officials welcomed the last-minute pause, saying “the American people are spared the immediate economic harm that tariffs would inflict.”

“It is good news that the U.S. has avoided an imminent trade war with Canada and Mexico, our two most important trading partners,” the chamber noted.

CBIA president and CEO Chris DiPentima said manufacturers bear the brunt of tariffs on imported goods and retaliatory actions by targeted countries.

“Honestly, this is the last thing our manufacturing sector needs after dealing with the pandemic, supply chain disruptions, soaring inflation, and the labor shortage crisis over the past five years,” he said.

“While the sanctions on China will have some impact here, the last-minute pause with Canada and Mexico averted—for now—serious long-term damage to the manufacturing sector and our economy.”

General Dynamics Electric Boat president Mark Rayha said the company was monitoring the situation, but believes any sanctions will not have an immediate effect on the the Groton-based submarine manufacturer.

“Most of the components that we’re getting we’ve already acquired,” he said Feb. 3, while noting that the potential impact on EB’s supply chain—which includes 333 Connecticut companies—was “less certain.”

U.S. President Donald Trump is also threatening trade sanctions on European Union countries. Germany, the Netherlands, and France are among Connecticut’s top 10 export markets.

‘Ripple Effects’

Canada and Mexico are continuing negotiations with the U.S. to avert future sanctions following the current 30-day pause.

Trade between the three countries is regulated by the U.S.-Mexico-Canada Agreement, signed by Trump in 2018 during his first term in office and up for review in 2026.

DiPentima said the design of the USMCA, which replaced the 1994 North American Free Trade Agreement, meant manufacturing components could cross borders multiple times before final product assembly.

“The ripple effects will be severe, particularly for small and medium-sized manufacturers.”

NAM’s Jay Timmons

“Based on NAM data, one-third of all U.S. imported manufacturing inputs come from Mexico and Canada,” he said.

“Those complex supply chains are essential for manufacturers in Connecticut, particularly in the aerospace and defense sectors.”

NAM president and CEO Jay Timmons warned that trade sanctions on Canada and Mexico threaten “to upend the very supply chains that have made U.S. manufacturing more competitive globally.”

“The ripple effects will be severe, particularly for small and medium-sized manufacturers that lack the flexibility and capital to rapidly find alternative suppliers or absorb skyrocketing energy costs,” he said in a statement.

Economic Impact

Connecticut companies exported $17.38 billion in goods in 2024—up $1.54 billion over the previous year—with growth in a number of key markets that the Trump administration is now targeting with tariffs.

More than 4,600 Connecticut companies—89% small or midsized firms—export goods, with commodity exports accounting for 5.9% of the state’s GDP.

Commodity sales to Canada increased $189 million to $2.3 billion in 2024, with aerospace components representing about 20% of all shipments.

Canada is also Connecticut’s largest trading partner, accounting for $5.74 billion of the $22.74 billion in goods the state imported in 2024.

Connecticut exports to Mexico soared $596 million last year to $1.67 billion, with that country moving from fifth to third among all markets.

Connecticut companies exported $17.38 billion in goods in 2024—up $1.54 million over the previous year.

China is now Connecticut’s fourth leading export destination, with exports jumping $468 million to $1.46 billion last year.

Mexico shipped $3.6 billion in goods to Connecticut last year, followed by Germany ($1.59 billion), the Netherlands ($1.38 billion), and China ($1.34 billion).

Imports from China have declined $954 million (-41.5%) since 2018, while Canadian imports increased $2.16 billion (60%) and Mexican imports grew $1.11 billion (44%).

Transportation equipment, including aerospace components, represent the greatest share of Connecticut’s exports at $6.21 billion, up 15.2% from 2023.

Aerospace is also Connecticut’s leading manufacturing sector, with annual output exceeding $13.8 billion in goods—40% of all manufacturing production.

Connecticut manufacturing employs 157,800 people—9.2% of the overall workforce—while the export sector supports more than 50,000 jobs.