How Trump agenda, from budget cuts to tariffs, is changing battle between U.S. states for business

CNBC's 19th annual "America's Top States for Business" study will rank states based on ten categories of competitiveness, with 'Economy' receiving the heaviest weighting in 2025 due to recession fears and policy changes from Washington D.C. The study will also consider new economic risk factors like state exposure to international trade and China, infrastructure including power grid reliability, and the impact of climate change on insurance costs, reflecting the evolving landscape of business attraction and job creation.

Analysis

The U.S. economic development landscape is undergoing a significant transformation driven by federal policy shifts, including potential budget cuts and evolving tariff structures, which are altering states' traditional reliance on federal funding and international trade. States less dependent on federal government support and those with diversified economies are positioned advantageously. For instance, Kentucky's economy, with exports and imports constituting approximately 50% of its GDP, faces different challenges compared to Virginia, where this figure is less than 10%. These changes are also fostering new opportunities, evidenced by foreign companies establishing U.S. manufacturing to mitigate tariff impacts and domestic growth in sectors like artificial intelligence, quantum computing, and defense. The upcoming CNBC "America's Top States for Business" study will reflect this new environment by heavily weighting the 'Economy' category and incorporating new risk factors such as state-specific exposure to international trade (particularly with China), infrastructure robustness—including power grid reliability crucial for large investments like Meta's $10 billion data center in Louisiana—and the economic impact of climate change on insurance costs. Categories like Business Friendliness and Technology & Innovation are also gaining prominence as businesses seek certainty and competitive advantages in burgeoning fields.

Key Decisions for Investors

• Investors should closely monitor the forthcoming CNBC state rankings, particularly the 'Economy' category and newly introduced risk factors, to identify states with resilient and adaptive economic strategies.
• Consider portfolio adjustments towards states demonstrating lower reliance on federal funding, robust infrastructure, and proactive measures to attract investment in high-growth sectors like AI, advanced manufacturing, and data centers.
• Evaluate geographic concentration risk, particularly in states with high exposure to international trade disruptions, especially concerning China, or those vulnerable to rising insurance costs due to climate events, as these factors could impact regional economic performance and asset valuations.