Tracing Tariff Impacts Through Electricity Supply Chains: Assessment of the Effects of Trade Policy on Retail Electricity Prices

Abstract

This study examines the relationship between tariffs on electricity supply chain products and retail electricity prices in the United States, with a focus on Minnesota. Using a two-stage regression framework, we first estimate how a 1% increase in tariffs on 440 key electricity supply chain product categories—ranging from fuels and raw materials to advanced generation and grid technologies—affects imports of these products. We find that such a tariff increase is associated with a 4.55% reduction in imports. In the second stage, we link tariff-induced changes in imports to retail electricity prices across residential, commercial, and industrial sectors. Statistically significant and robust results are found only for the residential sector, where a 1% tariff increase corresponds to a 0.78 cent/kWh rise in retail prices. Applying these results to recent U.S. trade agreements with major partners—including the European Union, Japan, South Korea, and the United Kingdom—we project that Minnesota’s electricity sector will incur an additional $2.29 billion annually or an average increase of $0.035/kWh, translating into an increase of $316 per year in electricity bills for an average residential ratepayer if these tariffs are maintained for a substantial period of time. The findings highlight strong historical co-movement between upstream input costs and residential electricity prices, underscoring the need for targeted policy responses to mitigate potential impacts on households, especially low-income consumers.