Texas could be the state hardest hit by Trump's tariffs on Mexico and Canada, economists say
Economic experts believe Texas will be impacted by President Donald Trump's escalating trade war more than other states due to its ties to the global economy.
Starting Monday, China is imposing new tariffs on a wide range of U.S. agricultural products in response to higher levies on Chinese imports announced by the president the previous week. Mexico and Canada were hit with 25% tariffs last week, but the Trump administration issued exemptions for many goods just two days later.
What is a tariff
A tariff is essentially a tax that the first recipient of the product, usually a business, has to pay.
"So, at the end of the day, the consumer ends up paying higher prices," said Venkatesh Shankar, a professor at the Southern Methodist University Cox School of Business.
If the U.S. implements and sustains a 25% tariff on its neighboring countries, economists say it will have a major impact on Texas.
"We've estimated the state would lose around 370,000 jobs a year as a result of that, and around $46 or $47 billion a year in gross domestic product," said Ray Perryman, founder and CEO of The Perryman Group, an economic research company based in Waco.
"Texas would by far be the state that's hardest hit by these tariffs," Perryman added.
Mexico is Texas' biggest trading partner
According to state data, Mexico has been Texas' top trading partner for almost 20 years.
"We buy a lot of things from Mexico," Perryman said. "Mexico buys a lot of things from us… For the last 30 years we've stitched these economies together. They're really integrated in some fundamental ways. And when you rip those seams apart, you're going to start seeing some pretty significant impacts."
Their research indicates the first thing people will notice is the price of produce going up.
"We buy a lot of produce from Mexico," Perryman said. "Tomatoes, crushed crops, greens, avocados, things like that."
Economists predict manufactured items like cars and electronics would be impacted, especially if Mexico enacts retaliatory tariffs.
"Texas and Mexico, we trade about $275 billion," Shankar said. "Electrical machinery, mineral fuel and oil, plastics, vehicle parts — all of these will come under a lot of pressure."
Texas buys steel and lumber from Canada to build houses
Tariffs on the steel and lumber Texas gets from Canada could make it even harder to find affordable housing.
"That would have a big negative impact on our homebuilding industry as well, which also ultimately makes its way to consumers," Perryman said.
He believes the ripple effects of tariffs would impact multiple industries and even increase inflation.
"You're basically fundamentally changing a system that's evolved over a long time that works really well and has produced a lot of benefits," he said. "And so when you start interfering with that and dismantling that, you're going to see some significant consequences that really do work their way through a lot of different crevices in the economy."
The economic uncertainty over what will happen next has already caused stocks to stumble. Mr. Trump has announced and then backtracked on tariffs twice in the past two months. He now said reciprocal tariffs will go into effect on April 2.
"The threat, the tariff announcements keep changing by the day in terms of when it'll start, when it may be revoked, when there may be a pause," Shankar said. "So that uncertainty may also play into economic growth prospects going forward. Texas is likely to be affected most compared to other states."
