Skip to Content

Trump’s Mexico tariff plan could cost Texas billions

31 May

The bill paid by Texas businesses and consumers could top a whopping $26 billion annually if President Donald Trump follows through on his threat to slap a tariff on all products imported from Mexico, the state’s top trading partner.

Manufacturers would see costs climb for machinery parts and electronics, while consumers would pay more for televisions, computer monitors and other goods. Prices for many fruits and vegetables, including tomatoes, avocados and limes, would rise as well.

The tariff would be felt nationwide, but Texas imports more from Mexico than any other U.S. state — bringing in $107 billion of Mexican products last year – and its economy is closely linked to that of its southern neighbor.

“This is bad,” said Gerry Schwebel, who heads the international division of Laredo-based IBC Bank. “We hope that cool heads will prevail and pull back from this. If our trade slows down, the volume of economic activity will slow down and the entire economy will slow down.”

Pia Orrenius, a senior economist at the Federal Reserve Bank of Dallas, said Trump’s plan would hit the United States, and Texas in particular, so hard that she doesn’t think it actually will take effect.

“It goes to the very core of the U.S. manufacturing industry,” because of shared U.S.-Mexico production and entwined supply chains, Orrenius said. “It would really damage U.S. producers and U.S. consumers. There would be very significant effects, to the point that we think, hopefully, it won’t be implemented.”

On Thursday, Trump said he plans to levy a 5% tariff on all U.S. imports from Mexico beginning June 10, unless the Mexican government does more to stop the flow of undocumented immigrants across the border. Trump said the tariff will “gradually increase until the illegal immigration problem is remedied,” rising in 5% increments each month until reaching 25%.

A 25% levy on $100 billion-plus in Texas imports from Mexico would equate to a huge annual drag on the state’s economy, business leaders and economists said. But they also noted that the impact would be even more significant if Mexico opts to retaliate with its own levies, because Texas exports about $110 billion worth of goods to Mexico annually, equating to up to 40% of the state’s total exports.

“Usually, (tariffs are) borne by the consumer,” said Luis Ribera, director of the Center for North American Studies at Texas A&M University. “I don’t think there is any question there is going to be a drop in consumption (because of the tariffs). If you have a 25% increase in the cost of your tomatoes and avocados, that is going to affect how much of them you are going to buy.”

The United States imported $12.9 billion worth of produce from Mexico in 2017, the most recent figure available, with much of it arriving through Texas border crossings. Nearly half of the estimated 475,000 truckloads of fruits and vegetables entering the country from Mexico came through Texas, according to figures compiled by Texas A&M.

Eddie Aldrete, chairman of the Texas-Mexico Trade Coalition, said the consequences of Trump’s tariff plan “could be swift and severe, especially in Texas” because of the state’s close ties with Mexico.

“Immigration and trade are entirely separate issues and need to be treated as such by our administration,” Aldrete said in a written statement. “Tariffs on Mexico are not a sustainable strategy.”

The Texas-Mexico Trade Coalition, which is backed by the Texas Association of Business and other industry organizations, has been active in lobbying for Congressional ratification of the new U.S.-Mexico-Canada Agreement — Trump’s planned replacement for the decades-old North American Free Trade Agreement that has played a big role in solidifying the economic links between Texas and Mexico.

Laramie Adams, national legislative director for the the Texas Farm Bureau, said his group also is worried that the threat of a new U.S. tariff could derail the pending trade deal. In addition, Adams said, the potential for retaliation by Mexico is of grave concern for Texas farmers.

“We don’t know exactly how they would retaliate, but in the past they have retaliated on agriculture,” he said. “We don’t want to go back there. We understand (the United States has) got to hold other countries accountable, but at the same time our farmers and ranchers are struggling right now.”

Schwebel, meanwhile, said the mere threat of tariffs has the potential to cause turmoil at the state’s border crossings, as businesses with supply chains spanning both countries accelerate shipments to avoid the new levies or work to find alternatives. He said the effort to enforce the new tariff if the plan actually goes into effect is likely to cause even more disruption.

“It is going to create chaos for the whole process,” said Schwebel, executive vice president over IBC Bank’s international division.

Article Source: Statesman