Donald Trump’s tariffs on Mexico could devastate border region, Texas economists warn

By Pooja Salhotra, The Texas Tribune

Nov. 26, 2024

“Donald Trump’s tariffs on Mexico could devastate border region, Texas economists warn” was first published by The Texas Tribune, a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.

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President-elect Donald Trump’s intention to levy a 25% tariff on goods imported from Mexico and Canada sent shockwaves across the country — especially on Texas’ southern border, where the vast majority of trade between the U.S. and Mexico passes through.

In a post on Truth Social on Monday, Trump said he plans to levy a 25% tariff on goods from Canada and Mexico as soon he takes office until drugs and undocumented migrants stop crossing the border. He also threatened to impose a 10% tariff on all products from China, saying the country is sending illegal drugs to the U.S.

Mexico, China and Canada are the U.S.’s largest trade partners, and tariffs would likely disrupt the economies of all three countries by crippling exchange among auto and electronic manufacturers, which ship goods at various stages of production across borders to take advantage of each country’s unique production strengths.

Consumers can expect to see the cost of imported goods rise and the number of jobs in the manufacturing and warehousing sectors decline as the increased prices curtail demand, economists said.

“When we mess with trade relationships, we kind of shoot ourselves in our own foot,” said Jesus Cañas, senior business economist for the Federal Reserve Bank of Dallas. “If firms have to pay 25% more, they won’t take that out of their profits, they’ll just pass that on to us.”

A majority of goods traded across the U.S., Mexico and Canada are intermediary goods. For example, the U.S. might input Chinese electrical parts in a vehicle and send that vehicle to Mexico for a circuit board. That product might then be sent back to Texas to be stored in a warehouse in El Paso before the car is finished in an assembly line in Dallas.

An individual product could pass between the U.S. and Mexico between four and eight times, said Tom Fullerton, an economics professor at the University of Texas at El Paso. A tariff would therefore substantially increase the cost of the final product and make it less competitive on the international market.

While the entire country would feel impacts of tariffs, Texas would be disproportionately affected based on the amount of trade the state conducts with Mexico. Along the U.S.-Mexico border, from Laredo to El Paso, free trade has fueled job growth and improved the standard of living for residents.

Jon Barela, CEO of an economic development organization called the Borderplex Alliance, recalled unemployment figures in the double digits three decades ago. Now, they hover around 4%.

In 2023, trade between Texas and Mexico totaled $272.3 billion, according to the governor’s office, making Mexico Texas’ number one trading partner.

“The biggest impacts are going to be felt by manufacturing companies, transportation companies and warehousing companies,” Fullerton said. “We could end up with a repeat of the 1930s with the Smoot-Hawley Tariff Act,” which created a trade war and contributed to the Great Depression.

In response to Trump’s announcement, Mexico President Claudia Sheinbaum suggested the country would retaliate with its own tariffs if Trump levies 25% import duties. She said Mexico has gone to significant lengths to stem the flow of migrants across the border, adding that migrant apprehensions at the southern border have declined every month this year. In addition, she said Mexico could not control the U.S. demand for drugs.

In 2020, the U.S., Mexico and Canada ratified a free trade agreement that replaced NAFTA. The imposition of tariffs would likely violate that agreement, which is set to expire in 2026.

Texas elected officials expressed support for Trump’s tariffs. Agriculture Commissioner Sid Miller said tariffs are a good negotiating tool and could encourage Mexico to shut down the border. He dismissed any potential economic impacts as temporary.

“We are trying to shut down the flood of illegal immigration,” Miller said. “That factor alone offsets any temporary price increase.”

Gov. Greg Abbott did not immediately respond to The Texas Tribune’s request for comment. But on social media, he appeared to praise Trump for “prioritizing securing the border.”

Economists remain skeptical as to whether Trump will follow through on his plan. He has a history of using tariffs to promote negotiations. But they all agree that the tariffs would have inflationary consequences, even though Trump campaigned on a promise to reverse the high rates of inflation that set in after the COVID-19 pandemic.

“If you like your avocados from Mexico, expect to pay 25% more,” Barela said. “If you like Mexican beer, expect to pay 25% more. This will not only have the effect of killing jobs throughout our region, it will have a dire inflationary aspect.”

Disclosure: Borderplex Alliance and the University of Texas at El Paso have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

This article originally appeared in The Texas Tribune at https://www.texastribune.org/2024/11/26/donald-trump-tariffs-texas-border-economy/.

The Texas Tribune is a member-supported, nonpartisan newsroom informing and engaging Texans on state politics and policy. Learn more at texastribune.org.

December 2nd, 2024 | News