Texas Border Business
Although the situation remains in flux and a temporary pause is fortunately in place, it bears repeating that sustained, significant tariffs on imports from Canada and Mexico would be very costly to the US economy. Tariffs of 25% on virtually all goods imported from Mexico and Canada (except for Canadian energy products which are scheduled to be at a 10% rate) were recently announced. Such levies would begin to shred the gains that these countries have attained by stitching their economies together during three decades of free trade.
The stated reasons for the tariffs include reducing the flow of fentanyl into the US as well as assisting with controlling illegal immigration. While these are important goals, if levies of this magnitude are maintained for an extended period, the costs are just too great.
A 30-day delay in implementation of the tariffs on imports from Mexico was announced following an agreement for joint measures to fight the flow of fentanyl across the border and additional immigration support. Canada was planning waves of tariffs on US exports beginning with selected food items and clothing, but an eleventh-hour agreement was reached with Canada relating to border protection. If lasting solutions are not achieved through other means, we can expect retaliatory tariffs which further escalate the economic harms.
Mexico and Canada are among the most important US trading partners, ranking first and third. China (which is subject to notable tariffs with no deal in sight) ranks second. These three countries account for over 40% of total US trade. Products from our North American neighbors are integral to the US manufacturing supply chain as well as important to consumers. Cross-border production processes, which magnify the adverse impacts, are also common.
Tariffs would also increase inflation. Much of the additional costs paid by importers would be passed on to consumers. We estimate that tariffs could cause inflation to rise from the 2.9% average over the past 12 months to 3.9%. For some products (including food, electronics, and automobiles), increases would be much higher. When inflation and supply chain costs are included, the estimated effect on an average household could exceed $1,500 per year.
If tariffs on Canada and Mexico are implemented and sustained as proposed, estimated economic harms total $241.1 billion in annual gross product and more than 1.9 million jobs. (More detail is available on our website.) The overall cost to the US economy would be losses of approximately 0.9% of gross product, 0.9% of earned income, and about 1.3% of employment. Texas would lose about $45 billion in annual output and more than 360,000 jobs.
The recent pauses are good news, but we need to find more neighborly solutions across the board. 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.
