Steel Tariffs Raise Anxiety in South Texas Business Community

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Loaded trucks coming in from Mexico wait in line at the Bridge of the Americans customs station in El Paso, snaking back up the international bridge. El Paso had 763,868 trucks cross north in 2016 (BTS)" Bureau of Transportation Statistics.

Julio-César Chávez for the Rivard Report

Loaded trucks arriving from Mexico wait in line at the Bridge of the Americans customs station in El Paso, snaking back up the international bridge.

Area businesses and, ultimately, consumers likely will pay more for products ranging from a six-pack of beer to a car in the wake of tariffs placed on steel and aluminum imported from many of the United States' closest trading partners, including Mexico.

The South Texas business community, home to automotive and aerospace manufacturers that rely on steel mill articles for production, is holding its collective breath after the Trump administration carried out at midnight Friday what it had been threatening to do for months in establishing the tariffs on Mexican, Canadian, and European Union importers.

The tariffs include an additional 25 percent on steel imports and a 10-percent duty on aluminum goods. Locally, the effect is palpable as the South Texas economy is closely tied to trade with Mexico.

Local politicians, academics, members of San Antonio's business community, and trade organizations alike called President Donald Trump's measure to include its North American trade partners in a sweeping adjustment on steel mill imports a mistake.

Duffy Shea, president of Alamo Iron Works, said he expects prices to go up almost immediately. That won't be bad for his business, which distributes and fabricates carbon steel and houses industrial supply.

Shea said prices have been rising for the past three months as Trump and federal officials raised the specter of tariffs. An even sharper hike in prices could come next week, he added.

"If you’re consuming or buying steel your prices are going to go up, and they’ll probably be going up fairly dramatically fairly soon," he said.

U.S. steel futures prices have been on a steep incline since late last year.

American consumers will feel the pinch from the tariffs, from a can of soda to construction costs. And with threats of retaliation from the E.U., Mexico, and Canada alike, some of the U.S.'s most popular exports – pork, bourbon, and blue jeans — are due to face tariffs. Escalating prices for exported Kentucky bourbon, for example, would drive down demand and, thus, raise prices domestically.

Luis Martinez Jr., a customs broker in Laredo, imports goods from automotive suppliers such as Nissan. He said with the tariffs now in effect, importers of steel and aluminum products will either eat the cost, devise new supply chains, reduce their imports and exports, or choose to do business with a buyer in another country.

"The current administration’s erratic behavior is viewed as a large risk by our customers [and is] increasing trade barriers and eventually increasing prices for US consumers," Martinez said.

Trump invoked Section 232 of the Trade Expansion Act of 1962 and cited protecting national security as the reason for the protectionist measures.

He wants to punish trade partners who he says have taken advantage of free-trade agreements that are bad for domestic industries. Trump's campaign threats to renegotiate those pacts energized a loyal base of supporters who helped elect him.

Trump's trade policies are generally aimed at creating domestic jobs and increasing wages in legacy industries, such as manufacturing.

Steel industry experts readily admit that the U.S. steel manufacturing industry has been under siege amid the alleged circumvention by China of U.S. tariffs, the artificial low pricing of those steel goods to limit competition, and the oversupply of steel worldwide.

UTSA Institute for Economic Development Senior Research Director Thomas Tunstall speaks at the 6th Annual Eagle Ford Shale Consortium Conference.

Bonnie Arbittier / Rivard Report

Thomas Tunstall, professor of economics at the University of Texas at San Antonio.

But Thomas Tunstall, professor of economics at the University of Texas at San Antonio, doesn't see a silver lining.

"Maybe to some extent there's a case to be made you don't want to be too dependent on foreign suppliers of anything in the case there are supply chain disruptions, but it's not clear what the benefits will be – if any," Tunstall said. "It feels a lot like shooting from the hip. There will be tit for tat, and presumably, the tariffs will go away when everyone gets tired of having to deal with the respective downsides of each."

Observers increasingly worry the protectionist measures are bringing the U.S. to the brink of a global trade war.

Dennis Nixon, IBC Bank president and CEO, said tariffs as a mechanism to solve trade disputes usually lead to retaliatory tariffs. IBC Bank has a significant number of clients with businesses and properties in Mexico.

As quickly as the news of the tariffs circulated Thursday morning, so too did the responses from Mexican, Canadian, and E.U. officials promising there would be consequences to the U.S.'s actions.

The measure drew ire from within Trump's own party. U.S. Rep. Will Hurd (R-Texas) issued a statement Thursday condemning the tariffs.

Representative Will Hurd (TX-23) gives the luncheon keynote at the Cybersecurity Conference. Photo by Kathryn Boyd-Batstone.

Kathryn Boyd-Batstone / Rivard Report

U.S. Rep. Will Hurd (R-Texas)

"The result of arbitrary tariffs on commodities will be an increase to the costs of everything for middle-class families, from the food on our tables to the fuel in our cars," Hurd said. "As I’ve said before, we should be working with our allies instead of using an 18th-century tool that has repeatedly failed in the past. I urge the administration to reconsider this decision.”

Toyota, whose San Antonio manufacturing plant has been in operation for about 12 years, deferred to a statement from the Alliance of Automobile Manufacturers when reached for comment.

Comprising 12 car manufacturers and advocating for the U.S. automotive industry, the alliance said most domestic car suppliers get most of their steel and aluminum from U.S. producers, but imposing tariffs will cause the cost of American-produced steel to rise and raise vehicles costs for consumers.

"Keeping vehicles affordable means higher sales, more auto sector jobs, and faster fleet turnover – translating into fuel economy gains and safety improvements," the alliance stated.

Former U.S. Ambassador to Mexico Antonio Garza said the tariffs make renegotiating the North American Free Trade Agreement an even longer game, as Mexico is set to elect a new president July 1. Garza, now an attorney with White & Case in Mexico City, said there was hope the countries would announce a new agreement sometime this year. With a new administration – and likely a mostly new Congress installed – Garza said it is now less likely that a replacement or renegotiation of NAFTA will be completed this year.

"With a new administration in Mexico and new Congress in the U.S. they’ll feel the latitude – indeed responsibility, and appropriately so – to have significant input into whatever a new agreement might look like," he said. "And that means more uncertainty."

(From left) Texas Tribune Co-founder and CEO Evan Smith, U.S. Rep Joaquín Castro (D-Texas), and former U.S. Ambassador to Mexico Antonio Garza participate in a conversation on immigration at University of Texas at San Antonio – Downtown Campus.

Bonnie Arbittier / Rivard Report

U.S. Rep Joaquín Castro (D-Texas), and former U.S. Ambassador to Mexico Antonio Garza (right) talk about the importance of a healthy Mexico-U.S. relationship during a conversation on immigration at University of Texas at San Antonio – Downtown Campus in November 2017.

With cooling relations between the U.S. and Mexico, retail tourism from Mexican shoppers has seemed to slow recently, according to many in South Texas who cite anecdotal evidence. Mexican nationals spend billions of dollars in South Texas every year.

Richard Perez, who leads the San Antonio Chamber of Commerce, said the Trump administration's policies appear to be driving away Mexicans who readily spend their money at such retail hubs as The Shops at La Cantera, on the city's Northwest Side.

"I do see [Trump's policies] as a growing disincentive for Mexicans to visit the U.S. and San Antonio," Perez said. "I can tell you anecdotally … the traffic is lower."

Trump's trade and tariff policies may play well in the Rust Belt, the once-prosperous industrial region in the northeastern and midwestern U.S. that now mostly struggles in a globalized economy with relatively high unemployment and low wages.

But Garza worries they are hostile to Texas' economy and that of its southern neighbor. He said the uncertainty surrounding NAFTA – as well as other political and economic factors – is driving down the Mexican peso. The drop in Mexican retail consumerism in the U.S. might not be a boycott but rather due to decreasing affordability.

"Forget feelings – their buying capacity has been reduced," he said.

U.S. Rep. Joaquín Castro (D-Texas) said the tariffs threaten Texas jobs and manufacturing and hurt trade.

"Instead of damaging our partnerships abroad, we should refrain from linking these tariffs, applied on national security grounds, to NAFTA renegotiations and instead work with our allies to address Chinese overcapacity in steel and aluminum through collective action," Castro said.

 

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