Texas Border Business
by M. Ray Perryman, THE ECONOMIST
Amid the growing concerns and very real costs that are accumulating regarding a trade war, there was recently a glimmer of hope. President Trump announced that the United States and the European Union (EU) would begin negotiations immediately, working toward zero tariffs and improved cooperation. A strong trade agreement is in the interest of both sides, and a little success might help set the stage for other progress in the near future. EU members are major US trading partners, and, if zero tariffs can indeed be achieved, the benefits will be substantial on both sides of the Atlantic.
Texas has significant trading relationships with many EU countries. In fact, five of Texas’ top 25, excluding the soon-to-be Brexited Great Britain, exporting countries are EU members (the Netherlands, Belgium, Germany, France, and Italy). In 2017, Texas exports to these countries totaled nearly $20.0 billion (the number rises to about $25.6 billion if you include Great Britain). Seven of the top 25 countries (excluding Great Britain) from which Texas imports are EU countries including Germany, Italy, France, Ireland, Spain, the Netherlands, and Belgium.
As a major exporter, the Lone Star State would clearly benefit from the US-EU pact. We have analyzed the potential impact of a free trade agreement between the United States and the European Union on business activity in Texas. This analysis revealed that the state would likely see significant economic benefits, with additional potential gains stemming from productivity enhancements and efforts to eliminate non-tariff barriers to trade.
In fact, if all tariffs are removed on goods traded between the United States and the European Union, we estimate that the potential gains in business activity in Texas include almost $10 billion in output (gross product) each year and 89,600 permanent jobs (once markets have time to adjust).
Cooperation can also yield big benefits even beyond those associated with free trade. Impediments such as excessive or inconsistent regulation or complex customs processing can introduce inefficiencies and other issues, and working toward reducing such constraints has the potential to further enhance economies on both sides of the Atlantic.
From the very origins of trade centuries ago, there have been tariffs, quotas, and other obstacles. Over time, many of these issues have been eliminated through various agreements, and it is widely recognized that free trade is beneficial from both the import and the export sides. Recent backsliding toward introducing tariffs and leaving trade agreements have been detrimental, and it is very good news that zero tariffs is the goal with the EU. If we can get this deal done and follow it with a positive outcome for NAFTA (and elsewhere), the US and Texas economies will realize sizable gains.
