East Texas companies may face price increases as tariffs on some imported goods are looms, but understanding their purpose will help explain the bigger picture, Experts say
“As a strategy, it’s a good thing. You put some pressure on them, so you know you’re going to lose, but you know they’re going to lose more,” says Tyler Hibbs of the University of Texas. “The Business Research Director Manuel Reyes said. “Strictly speaking, in terms of economics, that’s bad for everyone.”
Taxes, or taxes on imports, are imposed to counter unfair trade practices from other countries, protect domestic industries or generate revenue. Strategically, they open trade negotiations and pressure international trading partners to carefully measure their options.
Trump is leviing 10% tariffs on Chinese goods and plans to order a 25% duty on all US steel and aluminum imports next month. The president suspended 25% tariffs on imports from Canada and Mexico.
The flow of drugs such as fentanyl through illegal networks has become a national emergency and a public health crisis, according to the Trump administration. In response, it was proposed that tariffs on imports from Canada, Mexico and China would address illegal immigration and hold these countries accountable for restraining drug trafficking.
China is unable to stop the flow of precursor chemicals into cartels, and Mexican drug lords maintain an alliance with the Mexican government, helping to overdose deaths of thousands of Americans, and national security It poses threats to security and administrative assistance.
Furthermore, Mexican cartels are increasing production with fentanyl and Canada’s powerful synthetic opioid, Nitazen.
“Access to the American market is a privilege,” the White House website states. “The previous administration has not fully utilized the US position in global trade to promote security, but President (Donald) Trump is taking action.”
Trade accounts for 67% of Canada’s GDP, 73% of Mexico’s GDP and 37% of China’s GDP, but only 24% of the US GDP. Nevertheless, in 2023, the US had the world’s largest commodity trade deficit, exceeding $1 trillion.
Tariffs can encourage countries to negotiate and reach pleasant conditions that benefit all aspects, Reyes said.
He said Trump is taking advantage of the importance of trade between the US and Mexico. Trade with the US is even more important to Mexico, especially due to the economic challenges the country has faced over the past five to ten years.
The Mexican economy is shrinking, and international trade with the US keeps it up.
While imposing tariffs will hurt the US economy, the impact on Mexico will be much more severe, Reyes said. It’s a loss situation, but the pressure is on Mexico as the economic damage there is outweighing that in the US
If the US imposes a 25% tariff and Mexico retaliates on its own, it’s not just consumers who feel the impact. Producers are also affected.
For example, the US produces genetically modified corn in the Midwest. This is essential for making tortillas, a staple food in Mexico. In the past, Mexico has become less efficient at producing its own corn for tortillas due to advances in genetically modified crops.
As a result, the US exports a significant amount of corn to Mexico.
Tariffs as protection
Tariffs are imposed to protect local industries and encourage domestic consumption. They help protect domestic businesses from unfair competition by increasing the costs of imports and ensuring a more level playing field for local manufacturers.
If the country subsidizes an industry, such as China, which covers the electricity costs of manufacturers, companies can produce goods at a lower price. For example, subsidized Chinese companies could potentially export their calculators to the US for $3, which would be cheaper than similar Texas Instruments calculators at a price of $10.
Without tariffs, local businesses are struggling to compete. To level the arena, the US government can impose tariffs and increase the price of import calculators to $7 or $8. Consumers then choose between a slightly cheaper foreign product or a domestically made product, allowing fair competition for local manufacturers.
This strategy is not limited to electronic devices. It has been expanded to agriculture and other industries.
Reyes explained decades ago that the United States produced most of its own oranges, particularly in states such as Florida and California.
To protect this domestic industry, the US government has imposed tariffs on imported oranges.
The goal was to limit foreign competition and allow local growers to maintain market share and continue selling their products. But the intention was to protect farmers in the country, but at a cost to consumers.
For example, if the US buys orange juice from Central America, where labor costs are much lower, the price is significantly cheaper compared to sources of more expensive Florida and California oranges. By imposing tariffs to protect domestic producers, the government essentially makes orange more expensive for American consumers.
In this case, consumers pay a higher price for goods such as orange juice, as the US costs to produce are higher than in other countries. Tariffs help domestic industries stay competitive, but in many cases, consumer prices are higher, Reyes said.
Tariffs as a source of revenue
The government can also use tariffs not only as a safeguard, but also as a source of income.
If customs duties are imposed on imports, additional costs are usually passed to the consumer in the form of a higher price. The government collects this tariff revenue, which can be used for public expenditure, infrastructure, or other initiatives.
Tariffs are also the source of revenue for the US government. These payments go directly to the US Treasury Department.
In 2019, the US generated $71.9 billion in revenue from tariffs.
Trump once suggested that tariff revenue could replace income taxes, but it’s difficult to implement such a shift, Reyes said. In 2023, the US raised $80 billion in tariff revenue, accounting for 1.8% of the government’s total revenue.
“That’s not important,” Reyes said. “Yes, we get some money from these tariffs, but that’s not proportional. That’s not substantial.”
Tariffs generate revenue, but their main purpose is often to protect domestic industries rather than as a major source of funding.
Local impact
Tariffs are good for initiating trade negotiations, but if implemented, additional costs will not go away. Instead, they are handed the supply chain.
“We’re committed to providing a range of services to our customers,” said Ray Perryman, president and CEO of Texas-based Perryman Group.
Costs are split between businesses and consumers, depending on the buyer’s sensitivity to price increases. If consumers are willing to pay more (lower price sensitivity), businesses will raise prices to cover the fees. If a consumer refuses to pay more (higher price sensitivity), the company may need to absorb some of its own costs to avoid losing its customers.
Companies will raise prices as much as possible without stoking away their customers.
East Texas can see higher costs in some sectors, Perryman explained. The bulk of Canadian wood used in building materials could raise home construction prices. Energy costs could also rise as both Mexico and Canada supply critical steel to the industry.
Consumers feel the impact at grocery stores, and prices for food imported from Mexico are high. Over time, the costs of automobiles, electronics and other products in both countries will also increase, putting an additional burden on East Texas households and businesses.
Retaliatory tariffs will reduce competitiveness for local manufacturers, especially mechanical and chemicals. This can lead to losses in sales as buyers are looking for more affordable options elsewhere. To compensate, manufacturers need to reduce employment, reduce production, and implement cost-cutting measures.
“It is important to reach agreements on key issues among North American countries to reduce the impact of maintaining these destructive measures for a long period of time,” Perryman Group reports. .
The whole picture
If a country is engaged in international trade, it has access to goods and services that are not available domestically.
“In all countries, we want to buy goods and services from others because we don’t have them or we’re more convenient in terms of cost,” Reyes said. “International trade is advantageous for both parties.”
For example, many products are imported from the US from low labor costs such as Central America, Thailand and Singapore. For example, countries like China are known for producing wood and other goods at low cost due to inexpensive labor.
Similarly, the US imports goods manufactured from countries such as Mexico and Canada. In this country, labor costs such as automobiles and clean manufacturing are more cost-effective than domestic production. The main advantage of international trade is that countries can focus on what they do best and buy things that cost more to generate themselves.
This system creates the advantages of double use. Consumers will have access to products at a lower price, allowing countries to invest their resources in industries with comparative benefits.
“As a strategy, it’s good because you’re pushing. It’s negotiations,” Reyes said. “President Trump is a great negotiator, so it’s effective as a negotiation tactic that gives you a partner the advantage. But if you’re really planning a follow-through, yeah.”
