Tariffs on Mexican imports could destroy the Texas border

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President-elect Donald Trump’s move to impose a 25% tariff on goods imported from Mexico and Canada sent shockwaves across the country – particularly at the southern border of Texas, where most U.S.-Mexico trade passes.

In a post on Truth Social on Monday, Trump said he plans to impose a 25% tariff on goods from Canada and Mexico starting when he takes office until drugs and illegal migrants stop crossing the border. He also threatened to impose a 10% tariff on all products from China because the country was sending illegal drugs to the United States

Mexico, China and Canada are the U.S.’s largest trading partners, and tariffs would likely disrupt the economies of all three countries by crippling exchanges between auto and electronics manufacturers that ship goods in various stages of production across borders to benefit from each’s unique output country’s strengths to benefit.

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

“If we mess up trade relations, we are shooting ourselves in the foot,” said Jesus Cañas, senior business economist at the Federal Reserve Bank of Dallas. “If companies have to pay 25% more, they don’t take it out of their profits, they just pass it on to us.”

A large proportion of the goods traded in the USA, Mexico and Canada are intermediate products. For example, the US could install Chinese electrical parts in a vehicle and send that vehicle to Mexico for a circuit board. That product could then be shipped back to Texas to be stored in a warehouse in El Paso before the car is completed on the assembly line in Dallas.

A single product could be transported four to eight times between the U.S. and Mexico, said Tom Fullerton, an economics professor at the University of Texas at El Paso. A tariff would therefore significantly increase the cost of the final product and make it less competitive in the international market.

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

Jon Barela, CEO of an economic development organization called the Borderplex Alliance, recalled unemployment rates in the double digits three decades ago. They are now at around 4%.

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

“The biggest impacts will be felt by manufacturing companies, transportation companies and warehousing companies,” Fullerton said. “The Smoot-Hawley Tariff Act could lead to a repeat of the 1930s,” which sparked a trade war and contributed to the Great Depression.

In response to Trump’s announcement, Mexican President Claudia Sheinbaum suggested that if Trump imposes 25% import tariffs, the country would retaliate with its own tariffs. She said Mexico has made significant efforts to stem the flow of migrants across the border, adding that migrant apprehensions at the southern border have declined every month this year. Additionally, she said Mexico cannot control U.S. drug demand.

In 2020, the United States, Mexico and Canada ratified a free trade agreement that replaced NAFTA. Imposing 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 close the border. He dismissed possible economic impacts as temporary.

“We’re trying to stem the tide of illegal immigration,” Miller said. “This factor alone offsets a 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 about whether Trump will implement his plan. He has used tariffs to promote negotiations in the past. But they all agree that the tariffs would have inflationary consequences, even though Trump campaigned on promises to reverse the high inflation rates that began in the wake of the COVID-19 pandemic.

“If you like avocados from Mexico, expect to pay 25% more,” Barela said. “If you like Mexican beer, expect to pay 25% more. Not only will this result in the destruction of jobs across our region, it will also have a devastating inflationary effect.”

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