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Texas would be the biggest loser if the U.S. waged a trade war with Mexico over President Donald Trump’s proposal to build a border wall and impose a 20 percent tariff on goods coming across the Rio Grande, according to a new report by WalletHub.
“If and when the president’s plan comes to fruition, experts predict it will trigger a trade war between our two nations. But the impact of the economic fallout will be different for every state,” the WalletHub report states.
Texas is the No. 1 trading partner in the U.S. with Mexico, making the state particularly vulnerable if the U.S. withdraws from the North American Free Trade Agreement, the report said. Arizona, Michigan, New Mexico and Kentucky round out the top five U.S. states, respectively, hit hardest by a trade war, according to WalletHub.
“The U.S. economy would suffer from withdrawing from NAFTA and would see an immediate impact on the prices for certain products,” added WalletHub.com analyst Jill Gonzalez in an email.
Roughly 37.7 percent of all exports from Texas go to Mexico, the biggest percentage among all 50 states. That represents 5.8 percent of the state’s gross domestic product, also more than any other state.
Texas gets more imports from Mexico than any other country, roughly 33.2 percent of all of its imported goods.
A trade war wouldn’t be likely to tip either country into an economic recession. “The likelihood of a recession is quite slim for both countries since they have other trading agreements with other countries, and the U.S. economy is quite stable,” Gonzalez said. “However, a trade war with Mexico could impact U.S. agreements with other countries, as it could create global mistrust.”
Free Trade Alliance San Antonio CEO and President José Martinez said the findings were logical.
Martinez questioned the report’s premise since Trump hasn’t rolled out specific details on a tariff or on how he wants to renegotiate NAFTA.
“I don’t think the United States will go into a trade war. We need to wait until the United States or Mexico takes a position,” Martinez said.
Since NAFTA went into effect in 1994, at least two disputes — over sugar tariffs and the blocked authorization of Mexican trucks to make U.S. deliveries — raised the possibility of a trade war, he said.
“Eventually, those settled down,” Martinez said.
One question that deserves attention is the U.S. trade deficit with Mexico, Martinez said. That’s the difference between the amount of goods exported to Mexico and the amount imported to the U.S. It was about $63.2 billion in 2016, billion according the Office of the U.S. International Trade Representative.
But the Mexico deficit is small when compared with the U.S. trade deficit with China, which was nearly $347 billion in 2016.
“I think this brouhaha with Mexico will be dwarfed when the argument shifts to China,” Martinez said.
Texas’ outsized export and import volumes with Mexico was predicted before NAFTA started.
In a 1993 book titled “Continental Shift: Free Trade & the New North America,” author William Orme Jr. devoted a chapter to the “Tex-Mex Axis.”
“NAFTA owes its political life to the Lone Star State. And for good reason,” Orme wrote. “The impact of Mexican trade on the American economy divides the United States neatly in two: Texas, and everywhere else. Mexico now accounts for about a third of total sales by Texas companies outside U.S. borders.”
Gonzalez said other options, besides a high tariff, exist to encourage the U.S. to produce goods domestically instead of outside the country.
“The best way to keep or establish production facilities in the U.S. is through an attractive tax environment supplemented with an easy-to-navigate policy system,” Gonzalez said.
dhendricks@express-news.net
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