Uncertainty Surrounds USMCA Renegotiation: Texas Economy at Stake

Texas officials and businesses are on high alert as the future of the United States-Mexico-Canada Agreement (USMCA) remains in limbo following the Trump administration's announcement not to renew the pact. With Mexico and Canada as Texas’ top trading partners, the potential repercussions are significant for the state's economy.

Since July 1, the U.S. has engaged in trade discussions with Mexico but has excluded Canada from negotiations. Compounding the uncertainty, President Donald Trump recently imposed a new 10% tariff on select Mexican imports and a staggering 50% tariff on a range of Canadian goods, including automotive products.

According to Tony Payan, director of the Claudio X. Gonzalez Center for the U.S. and Mexico at Rice University’s Baker Institute, these trade tensions pose major challenges for businesses in Texas, particularly for manufacturers and energy companies that require long-term planning. “Companies must now navigate uncertainty over investments that could be left unprotected by the agreement,” Payan stated.

In 2024, two-way trade between Texas and Mexico was valued at $281.2 billion, while trade with Canada stood at $69.2 billion, together representing 12% of Texas’ economy. Major exports, including oil, natural gas, and vehicles, rely on a steady flow of parts from both countries. A dissolution of the USMCA would severely impact this interdependence.

North Texas-based Air Tractor, Inc., a manufacturer of agricultural aircraft, exemplifies this uncertainty. President Jim Hirsch expressed fears that the revival of tariffs on aircraft engines from Canada could significantly increase production costs and lead to potential layoffs. “It’d be tough. We don’t know how sharply orders may decline,” he noted.

While some companies, like Toyota, have opted to relocate manufacturing jobs to the U.S., many remain hesitant to invest due to the trade uncertainty, as highlighted by Jerry Pacheco of the Border Industrial Association. Projects are being postponed, and businesses are wary of the evolving trade landscape.

The impact of this uncertainty is already observable, especially in the auto parts sector. Tom Fullerton, an economics professor, remarked that the automotive industry in Texas will likely feel the most significant repercussions, with potential investments stalling across the region. Cushman & Wakefield PIRES reported a lull in manufacturing and warehousing expansion due to these trade tensions.

The future of the USMCA hangs in the balance, and with it, the fate of countless jobs in Texas. As discussions unfold, stakeholders across the state brace themselves for the potential economic fallout.