Tariffs on Mexico could deal blow to Houston economy

If President Donald Trump leads to the threat of imposing tariffs on all goods imported from Mexico, Houston's largest trading partner, Houston's largest industry could be confused to manage escalation costs next month.

Thursday night, the US president tweeted that he would impose a 5{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} tariff on all Mexican products on June 10. It will gradually increase until the influx of immigrants and asylum seekers from the Mexican border stops.

Customs tariffs will exacerbate the Houston economy, increasing costs from auto parts to Mexican oil and food, beverages, and agricultural products.

According to the estimates of the Greater Houston Partnership, trade between Houston and Mexico averages $ 23.3 billion annually, and about 75{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} of US-Mexico land trade, which reaches about $ 344 billion in 2015, passes through ports of entry to Texas. . Dallas Federal Reserve Bank.

The trade value between Houston and Mexico has increased gradually since 2016. This is mainly due to the rise in prices of fuel, oil and refined products. Last year, trade between the local economy and Mexico rose 22.7 percent to $ 24.6 billion.

Whether tariffs are imposed is uncertain. Mexico's President Andres Manuel Lopez Obrador wrote a letter immediately following the president's tweet asking him to solve the problem. Mexican officials traveled to Washington Friday to meet with US representatives directly on the dispute.

Fuel, oil and refined products, iron or steel, cars and parts account for the bulk imports from Mexico to Houston and proved to be the most costly for the local economy.

According to analysts at JP Morgan Chase, the biggest affected sector in Mexico will be manufacturing and could threaten the business of doing business with Houston companies.

Some car manufacturers, especially the automotive industry, send and receive parts from Texas to Mexico every day, completing one part of the vehicle in one country and another in another.

Jesus Cañas, senior business economist at the Dallas Federal Reserve, said that this symbiotic relationship is problematic for businesses and the Texas economy when trade agreements are threatened. According to Cañas' recent analysis, this manufacturing process essentially means companies can pay multiple tariffs to assemble a single product, and cross-border manufacturing operations aim to achieve competitively priced goods in the United States. It is an important part of corporate strategy.

In a previous interview with Houston Chronicle, Cañas said, "If there's a lot of confusion that concerns us because we need these inputs every day." "(Collapse) can eventually hurt the competitiveness of a Texas company."

Tariffs could potentially cause a serious blow to the Texas oil and gas sector, especially at higher Gulf Coast refineries that are configured to handle heavier grades that rely on Mexican crude. As sanctions on Venezuela limit large crude oil inputs to Houston refineries, the company has been able to increase the cost of tariffs because it is difficult for refiners to restructure their facilities to use even lighter domestic crude oil. You may need to absorb it. From West Texas.

According to the US Department of Energy, US refineries imported more than 660,000 barrels of oil from Mexico in February than any other country in Canada.

"The refinery can switch to a lighter crude oil feedstock, but it's less efficient and less profitable."

As oil prices have fallen to their lowest levels since February, the president's threat has already hit oil and gas on Friday. The West Texas Intermediate benchmark in the US was less than $ 56 per barrel, down 2{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} from Thursday's closing price.

Bill Herbert, Managing Director of Houston's Simons Energy, said prices are likely to continue to fall due to an unexpected increase in global demand for half of crude oil in the last three months of 2018.

"People are running towards the hill and asking questions later. And I think it won't stop until we stop rhetoric at the White House," he said. "Prices have been falling from mid-April to the end of April. Fear is growing mainly for trade and economic slowdown."

Local business leaders blamed the president's statement on Friday, mentioning little help in damaging Texas and modifying the immigration system.

Eddie Aldrete, President of the Mexican Trade Union of Texas, said, "immigration cannot be solved by tariffs, but trade can be used to induce cooperative partnerships." "Illegal immigration is a problem that affects both Mexico and the United States, so we have to work together."

Read more How Tariffs will affect Texas From HoustonChronicle.com

-With the help of Jordan Blum.