Texas Border Business
The recent barrage of tariffs involves very high economic costs. We estimate that the US economy could lose millions of jobs if the tariffs are sustained, and with each new levy du jour these consequences are escalating. I’ve also been getting a lot of questions lately about the effects on Texas. The short answer is that the fallout will be substantial. As a large economy and leading trading region, Texas bears a substantial portion of the national burden (more than any other state).
Mexico is the state’s top import source country, with $157.6 billion in 2024. The largest categories include computer and electronic products, transportation equipment, and electrical equipment. Mexico is also the top export market for Texas. Many goods pass back and forth across the border multiple times during the production process, thus creating the prospect of cascading price increases.
Canada volumes are lower, but still a hefty $38.6 billion in imports in 2024; top categories are transportation equipment, oil and gas, and chemicals. From China, Texas imported products valued at $35.9 billion in 2024, including high volumes of consumer and industrial electronics, home products, and toys.
When a tariff is imposed, the importing firm pays the tax to the US Treasury. Importers then pass much of the added cost to consumers and absorb any remainder through lower profits. The inevitable result is price increases and a diversion of money from the spending stream, causing major economic dislocations and harms.
I recently examined the Texas losses (including multiplier effects and accounting for any offsetting gains in local production) assuming a sustained 25% tariff on goods from Mexico. The net cost to the state would be almost $36.4 billion in annual gross product and about 287,500 jobs. A 25% levy on most products from Canada (with 10% on energy) adds losses of $9.6 billion in annual gross product and 76,600 jobs, while 10% on goods from China with 25% on steel and aluminum involves costs of $5.8 billion in gross product and 46,000 jobs. The losses from just these three countries total $51.7 billion in annual gross product and 410,000 jobs, not to mention the effect retaliatory tariffs will have on exports. (Texas is by far the largest exporting state in the country.)
While things are in flux as countries around the globe retaliate and policy changes constantly and unpredictably (which creates its own set of problems), these estimates illustrate the enormous magnitude of the potential costs if the trade war persists. Irrespective of their stated purpose, tariffs are causing disruptions and higher costs across a broad spectrum of the economy. In particular, these Lone Star losses, if sustained, would be highly detrimental to future business prospects. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.
