Texas businesses, particularly those in the agricultural and manufacturing sectors, are on high alert as the U.S. prepares to potentially implement stricter tariffs on Mexican imports. While the state has largely dodged the brunt of President Donald Trump’s trade policies thus far, a looming August 1 deadline threatens to drastically alter the landscape.

Mexico, Texas’s leading trade partner, had previously enjoyed significant tariff exemptions, with an estimated 85% to 90% of its goods avoiding a 25% tariff under a March agreement. However, President Trump recently notified Mexico, along with 24 other countries and the European Union, that tariffs would escalate to 30% unless new trade agreements are swiftly negotiated. This directive, sent to Mexican President Claudia Sheinbaum Pardo, notably omits any mention of extending the previous exemption for most Mexican imports.

“A 30% tariff is a game changer,” stated Dante Galeazzi, CEO and President of the Texas International Produce Association. He emphasized the profound difference between the current situation and the potential impact of such a steep tariff. Galeazzi’s organization represents 400 Texas companies within the produce supply chain, responsible for growing or importing $13 billion worth of produce annually. The produce industry’s close ties to Mexico, with many large farms operating on both sides of the border to ensure year-round production, makes it particularly vulnerable.

Last year, two-way trade between the U.S. and Mexico reached $840 billion, solidifying Mexico’s position as America’s largest trading partner. Texas alone traded $281 billion with Mexico in 2024, according to the Office of the United States Trade Representative.

The current trade tensions revolve around the United States-Mexico-Canada Agreement (USMCA), a pact negotiated during Trump’s first term to remove trade barriers and foster a more equitable environment for labor and manufacturing across the three nations. In March, early in Trump’s second term, U.S. trade policy with Mexico and Canada experienced significant volatility, briefly imposing a 25% tariff on goods before a subsequent deal exempted all USMCA-compliant products. This two-day period caused financial market instability and reverberated across all three economies, with Texas caught in the crossfire.

“March was incredibly challenging and stressful, requiring extensive preparation,” recounted Craig Slate, CEO and president of SunFed, an Arizona-based Mexican produce importer with operations in Texas. He noted that businesses have effectively undergone a “dress rehearsal” for the current situation.

Trump cited the influx of fentanyl across both the northern and southern borders as the rationale for the March tariffs, claiming insufficient efforts from both countries to combat the issue. Mexico and Canada threatened retaliatory tariffs. Subsequently, a deal was struck to exempt most goods traded between the three countries from tariffs for 30 days, an exemption later extended by another 90 days in April.

With this 90-day extension now expiring, Trump’s promise to reintroduce tariffs on Monday has economists concerned about a potential repeat of the economic difficulties experienced in March. The tariff rate for most North American trade could jump from 0% to 30% if USMCA exemptions are not maintained.

“This will be devastating for U.S.-Mexico trade,” warned Ed Hirs, an economist and energy fellow at the University of Houston. “It will necessitate a very difficult realignment as U.S. companies reliant on Mexican suppliers face tough decisions.”Tariff Costs: A Burden Shared Across the Supply Chain and Consumers

For SunFed, the impact of increased tariffs could be substantial, according to Slate. As the “importer of record” for farmers in the Mexican states of Sonora and Sinaloa, SunFed is responsible for paying tariffs to the U.S. government on its imported goods, including watermelons, squash, bell peppers, cucumbers, and cantaloupe.

Slate anticipates that the structure of the produce supply chain will likely distribute the tariff costs among SunFed, its Mexican farmer partners, the grocery stores it supplies, and ultimately, consumers. Rather than significant price surges at the grocery store if tariffs persist, Slate believes it’s more probable that consumers will experience shortages of certain products. This is because farmers or importers may deem the financial risk of importing goods to the U.S. too high.

Meanwhile, a 50% tariff on aluminum and steel, in effect since early June, is already driving a “notable pickup” in costs within Texas’s manufacturing sector, as reported by the Federal Reserve Bank of Dallas’s July economic health report. Hirs predicts further manufacturing cost increases due to a newly announced 50% tariff on copper, also effective August 1.

Some in Texas support Trump’s trade war, arguing that tariffs have effectively compelled other nations to negotiate more favorable trade deals. U.S. Rep. Tony Gonzales, R-San Antonio, expressed his focus on the August 1 date, noting that Trump has provided a couple of weeks to find a solution. He observed a shift in Mexico’s stance, with them now coming to the negotiating table.

Glenn Hamer, president and CEO of the Texas Association of Business, highlighted Texas’s position as the world’s eighth-largest economy, asserting the state’s greater resilience to economic uncertainty and its attractiveness as a market for international trading partners. “We will be a net winner regardless of the outcome, due to the strength of our economy, attractive policies, and stable infrastructure, which are key ingredients of the Texas miracle,” Hamer said.

A spokesperson for Gov. Greg Abbott informed Fox Business that the trade war presents an opportunity to “reset” global supply chains. “Texas is an economic development powerhouse, and we welcome new jobs and manufacturing from global businesses looking to expand American operations,” stated Andres Mahaleris, Abbott’s press secretary.

However, Hamer, along with trade war opponents and many Texas businesses, acknowledges that a 30% tariff on goods currently covered by USMCA could significantly harm the Texas economy. “If that were pierced, it would really hurt the business community in the United States and Texas simply because we build a lot of products together with Mexico and Canada,” Hamer explained.Long-Term Supply Chain Disruptions Feared

Even a brief disruption to the supply chain could have enduring consequences. “We learned firsthand and painfully during COVID that once you disrupt the supply chain, it never returns to exactly how it was,” Galeazzi emphasized.

The Texas business sector is now anxiously awaiting a new deal before Monday’s deadline. Canadian Prime Minister Mark Carney, however, downplayed the likelihood of a swift agreement, stating on Tuesday that “it’s not our objective to have an agreement at any cost.”

Mexico, which has adopted a more conciliatory tone than Canada throughout this year’s trade negotiations, remains optimistic about reaching an agreement. “We believe… we are going to reach an agreement with the United States government and, of course, achieve better terms,” Sheinbaum stated on July 12.

Regardless of whether a deal is reached, the prevailing uncertainty is detrimental to business, Hamer noted. “We’d like to see predictability and stability in our tariff policy as soon as possible,” he said. “For our businesses, small, medium, and large, achieving that level of certainty on tariffs is very important.”