The threat of tariffs by President-elect Donald Trump has sent shockwaves across the country, particularly in Texas’ southern border. If implemented, these tariffs could cripple trade between the US, Mexico, and Canada, leading to a significant increase in prices for imported goods, loss of jobs in the manufacturing and warehousing sectors, and a decline in economic growth.
According to Jesus Cañas, senior business economist for the Federal Reserve Bank of Dallas, “When we mess with trade relationships, we kind of shoot ourselves in our own foot.” Firms may not absorb the costs of these tariffs but instead pass them on to consumers. This would be particularly devastating for regions like Texas that rely heavily on trade with Mexico.
Most goods traded across the US, Mexico, and Canada are intermediary goods, which can lead to multiple stages of production crossing borders before reaching their final destination. A 25% tariff would substantially increase the cost of these products and make them less competitive in the international market. An individual product can pass between four and eight times before being completed.
The Texas-Mexico border region has seen significant economic growth due to free trade, with unemployment figures dropping from double digits three decades ago to around 4%. However, economists warn that tariffs could lead to a repeat of the 1930s Smoot-Hawley Tariff Act, which contributed to the Great Depression. The imposition of these tariffs would likely violate the USMCA (US-Mexico-Canada) free trade agreement and lead to retaliatory measures from Mexico.
While some Texas officials have expressed support for Trump’s tariffs, economists remain skeptical about their effectiveness in addressing immigration issues. Instead, they warn that these tariffs will lead to inflationary consequences and harm local businesses, particularly those involved in manufacturing, transportation, and warehousing.
The impact of tariffs on consumer goods is already being felt, with prices expected to increase by 25%. As Jon Barela, CEO of the Borderplex Alliance, warned, “If you like your avocados from Mexico, expect to pay 25% more. If you like Mexican beer, expect to pay 25% more.” The consequences of these tariffs will not only affect local businesses but also lead to a decline in economic growth and job losses throughout the region.
Source: San Antonio Report
