Border cities feel the pressure of Trump tariffs

Key Points
  • Business leaders in South Texas worry about managing the impact of a new 5% tariff on all Mexican imports.
  • Many of these companies say they already saw increased materials costs because of China tariffs.
  • Some argue that any negative impact on the Mexican economy will also hit U.S. cities along the border.
Border cities brace for Mexico tariffs

At the busy Pharr International Bridge in South Texas, big rigs line up to cross into the United States, loaded with everything from denim jeans to air conditioners to giant dump truck beds.

Of the $352 billion in goods imported from Mexico last year, 10% came in across the bridge, according to U.S. Census numbers.

On the U.S. side of the border, the city of McAllen is a hub for international trade and distribution.

Across the border is Reynosa, filled with maquiladoras — factories that take raw materials and manufacture parts and supplies to export.

"Any type of border community recognizes the impact the maquiladora operations have on their local economy," says Steve Ahlenius CEO of the McAllen Chamber of Commerce. "The jobs that are created not only in Mexico, but on the U.S. side — it's an important link that ties the two areas together, but more importantly, the two countries together."

Pharr International Bridge
Contessa Brewer | CNBC

South of the border: Whirlpool, Panasonic, Stanley Black & Decker and Alpine Electronics are among the companies that manufacture goods to send north. Many of these companies already blame China tariffs for increased materials costs; now they face a 5% tariff, or more, on their Mexican manufactured goods.

According to research issued by Goldman Sachs on May 31, "The largest category of imports from Mexico are autos and auto parts ($93B), computers ($27Bn), routers ($10bn) and other electronics ($17Bn)."

Vegetables rank No. 6 among the most-imported products, with $15 billion worth of goods coming into the United States. The Pharr International Bridge is the top port in the nation for avocados, figs and pineapples according to U.S. trade numbers.

Villita Avocados sends its products across the United States to Walmarts and Safeways. The company plans to absorb the 5% tariffs through cost efficiencies, but if the tariffs go higher, as President Donald Trump has threatened, the costs will be passed on.

"It forces us to open up dialogues with the retailers to make sure they understand that these costs at the end cannot be afforded solely by the company," says Aaron Acosta head of corporate relations at Villita. "Sooner or later they're going to affect the retail price."

Villita worries higher prices will mean fewer avocado buyers.

Business leaders in South Texas generally worry about how to manage the uncertainty and the impact on the local economy. Ahlenius insists, "It's a tax on business!"

He says Mexicans traveling to the McAllen metro area spend more than a billion dollars annually in the local economy. Any negative impact to the Mexican economy because of tariffs will translate to the McAllen economy, too.

Already bridge operators are protesting the tariffs. Customs brokers sent a letter to Trump explaining they don't have the mechanisms in place for collecting or enforcing tariffs in time for Monday.