Trump’s tariffs have even his supporters in Texas nervous

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WASHINGTON — President Donald Trump’s vow to levy punishing taxes on the country’s top trading partners is already having the Texas business community on edge, with even Republicans who support the president acknowledging it could cause pain in the state.

Trump on Saturday reportedly ordered 25% tariffs on goods imported from Canada and Mexico and an additional 10% tariff on China, which he subjected to tariffs under his first presidency. The New York Times reported that the tariffs are scheduled to go into place Tuesday. Mexico and Canada have threatened to levy retaliatory tariffs on the United States.

Mexico is by far Texas’ largest trading partner, followed by Canada with China coming closely behind. Free-trade advocates warn that tariffs on goods will be passed onto consumers — meaning higher prices for Texans. Any positive benefits such as bringing manufacturing back to the country may not appear for years.

“There would undeniably, indisputably be a negative economic impact if tariffs were to be enacted,” said Glenn Hamer, president and CEO of the Texas Association of Business, a group that supports many of Trump’s other domestic policies.

Texas prides itself in having one of the fastest growing economies in the country and one of the largest economies on earth, due largely to its looser regulatory environment and free exchange with other high value markets. Texas is the largest exporting state in the U.S. — a point of pride for Gov. Greg Abbott and that Abbott said aligns with Trump’s values for making the U.S. an exporting powerhouse. The state exports over $88.6 billion in goods to Mexico alone, and a further $23.4 billion to Canada.

Since he first floated tariffs during his campaign, several of his defenders have posited that the focus on tariffs could be a negotiating tactic.

Trump threatened the tariffs, saying he wants to pressure Mexico and Canada to invest more in preventing illegal border crossings. He made a similar move on Colombia after it rejected deportation flights from the United States. Within hours of Trump threatening 25% tariffs on Colombia in retaliation, the country allowed deportation flights to resume.

“Let's wait and see what the president actually does on tariffs,” said Sen. Ted Cruz, who chairs the Senate Commerce Committee. “In the first term, President Trump used very similar threats of tariffs to force Mexico to cooperate in securing our border, and it produced tremendous results.”

Cruz cited the “Remain in Mexico” policy, under which asylum seekers had to wait out their cases in Mexico in cooperation with the Mexican government. He declined to weigh in on ways to relieve pain if the tariffs are actually implemented.

The other Texas senator also advised a cautious approach. “It's a little hard to separate the negotiation tactics from reality,” Sen. John Cornyn said. “I think we're gonna have to see how this happens in practice, and then continue the conversation, because there comes a point at which tariffs add cost to consumers.”

The White House has asserted that the tariffs are happening, at least on Mexico and Canada, with tariffs on China still under consideration. White House Press Secretary Karoline Leavitt assured reporters Tuesday that “the Feb. 1 date for Canada and Mexico still holds.”

Free trade advocates still see positives in the president’s trade position. During his first term, Trump negotiated the US-Mexico-Canada Agreement, colloquially known as the USMCA, to update trade agreements among the three countries. Hamer, of the Texas business group, said that many members of the business community feel “incredible optimism” about Trump after four years under President Joe Biden, who many of Texas’ largest industries felt constrained them with regulations. Members of both parties in Texas protested when Biden issued pauses on liquefied natural gas export permits, which they asserted unfairly targeted Texas’ energy sector.

The US-Mexico-Canada Agreement “is the best trade deal ever signed into law in the United States,” Hamer said. “And we want to see the USMCA continue and to be enhanced in ways that will increase trade between our three countries.”

Hamer said the impact of tariffs would be impossible to fully quantify before they are implemented. But the uncertainty of the tariffs is already beginning to impact the state’s economy, particularly in South Texas where trade with Mexico is a lifeblood.

Andrew Lawson Carranco, chair of the Government Affairs Council at the Laredo Chamber of Commerce, said the uncertainty of the tariffs and how they would be executed puts the business community in the city in a precarious situation. The city is home to the biggest port in the country, handling more than $300 billion worth of goods a year passing between the United States and Mexico. He said the city has seen increased exchange across the border to get goods through before they’re charged punishing new rates.

“Of course, we've heard a date on the implementation of tariffs, but no one's really quite sure they're actually going to be implemented,” Lawson Carranco said. “So we're left with more questions than answers.”

Leaders in the manufacturing industry in the Rio Grande Valley agree that the immediate effects of tariffs would be devastating increases in prices to consumers. Joaquin Spamer, the president of Border Trade Alliance Mexico, said Mexico would likely retaliate with their own tariffs on farm products they import from the U.S.

"There is a very long list of U.S. agricultural products that are sold in Mexico," Spamer said. "They know that the border base for Trump is the agricultural communities, that's why they increase the tariffs immediately there."

South Texas made a historic swing toward supporting Trump in last year’s elections, with the president winning every South Texas congressional district in the traditionally Democratic stronghold.

Spamer also pointed out that some products cross the border multiple times before being sold to consumers. This can apply to clothes that are manufactured in Mexico using cotton or polyester that was imported from the U.S. It’s unclear if goods will be subject to tariffs on final delivery or each time they cross the border.

"It's not going to have a 25% tariff, it's going to have a 25% tariff on the cotton and a 25% tariff on the final product," Spamer said. "We're calculating over 40% actual price increase."

Companies could theoretically offset the costs to consumers by reducing their profit margins or renegotiating prices with foreign suppliers, but prices would increase regardless, said Jorge Torres, a licensed customs broker who is president of Interlink Trade Services. Either way, Torres said “it will be something that will be negative.”

Torres' own business has a lot on the line. As a customs broker, he provides warehousing along the border that caters to cross-border transactions between Mexico and the U.S. The proposed tariffs would likely cause his own business to experience a downturn with less demand for warehouse space.

Trump has previously used tariffs to bring more manufacturing to the United States, and he’s vowed to make a similar pivot, particularly with semiconductors, a major industry in Texas. Texas lawmakers from both parties have tried to attract semiconductor manufacturing through generous subsidies in a bid to increase competitiveness with Asia, but Trump said he favors a more punitive approach.

He also implemented tariffs on Chinese goods during his last presidency that the Biden administration maintained. Trump offered subsidies for Texas’s agriculture sector at the time to help it weather the trade conflict with China, and Brooke Rollins, a Texan who is his pick for secretary of Agriculture, said she would support similar moves this time.

Still, if tariffs attract more U.S. manufacturing, the benefits will likely come much later than the immediate price hikes. Setting up factories and other elements of the supply chain requires planning and investment that can take years.

"These types of investments in factories and opening facilities, they don't happen overnight," Torres said. "We might see some that might happen during his term, but I see that most of this, if it happens, will happen after he leaves office."

There are also likely to be negative effects on Mexico, said Adrian Gonzalez, also a U.S. customs broker. About 30% of Mexico's GDP is related to exports and about 80% of those exports are to the U.S., Gonzalez said. Because Mexico relies heavily on exports, tariffs would devastate the economy and lead to more turmoil such as an increase in drug cartel activity or mass immigration.

"The collaboration that is needed to address larger problems like immigration, fentanyl, security,” Gonzalez said, “those would be terribly damaged if the US decides to prevent Mexico from having a source of jobs and resources that they need via trade."

Disclosure: Texas Association of Business has been a financial supporter 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.