Why It Matters
The Trump administration’s decision to place the U.S.-Mexico-Canada trade agreement under annual review rather than renew it indefinitely threatens one of the largest revenue streams for Texas businesses. Mexico and Canada account for roughly 12 percent of the Texas state economy, and the administration has already announced tariffs that could force manufacturers to raise prices, cut staff, or relocate operations.
What Happened
On July 1, the Trump administration announced it would not renew the United States-Mexico-Canada Agreement (USMCA) as originally structured. Instead, the pact will remain subject to annual review, creating uncertainty for Texas companies that rely heavily on cross-border commerce.
The administration simultaneously announced a 10 percent tariff on a portion of Mexican imports and 50 percent tariffs on Canadian imports, including automobiles and trucks. The U.S. has held bilateral trade talks with Mexico since the announcement but has not engaged in negotiations with Canada.
Two major Texas business sectors are already feeling the pressure. Air Tractor, Inc., an Olney-based aircraft manufacturer that employs more than 400 people across North Texas, imports aircraft engines from Pratt & Whitney Canada. Those engines represent approximately half the value of the company’s finished planes. Under the new tariff structure, the Canadian engine tariff would effectively reach 25 percent without USMCA protections. The company’s president and chief executive, Jim Hirsch, said the impact would be severe: “It’d be tough. It would take deep cuts in staff and supply.”
On the automotive side, Toyota announced plans to shift 2,000 jobs from Tijuana, Mexico, to its San Antonio facility, citing the tariff environment. Meanwhile, a Taiwan-based auto component manufacturer purchased 30 acres in the Borderplex region near El Paso to supply Tesla but has not proceeded with development, citing trade uncertainty.
By the Numbers
$281.2 billion — two-way Texas-Mexico trade in 2024
$69.2 billion — two-way Texas-Canada trade in 2024
12% — combined share of Texas-Mexico and Texas-Canada trade in the state’s overall economy
50+ countries — markets to which Air Tractor sells aircraft
12% — potential price increase Air Tractor would impose on aircraft if USMCA is terminated
400+ — Air Tractor employees across North Texas
2,000 — Toyota jobs shifting from Tijuana to San Antonio
10 years — duration USMCA would remain subject to annual review if not renewed
Zoom Out
Texas’ dependence on cross-border trade with Mexico and Canada is far greater than most other states. The state’s trade volume with these two nations dwarfs its commerce with other regions, making it particularly vulnerable to tariff disputes and trade agreement uncertainty.
The decision to place USMCA under annual review marks a significant departure from the agreement’s original 16-year renewal structure and introduces a level of trade volatility that businesses say they cannot absorb. Tony Payan, director of the Claudio X. Gonzalez Center for U.S. and Mexico at Rice University’s Baker Institute, captured the scope of the challenge: “The problem is not for Washington or Mexico City or Ottawa. The problem is for businesses.”
Companies across industries are now facing a choice: absorb tariff costs through price increases, reduce workforce size, or relocate operations to jurisdictions with more favorable trade terms. Some manufacturers have already frozen expansion plans pending clarity on the trade environment.
What’s Next
Negotiations between the U.S. and Mexico are ongoing, but no timeline has been announced for resolution. The administration has not formally engaged Canada in talks. Businesses are watching closely to see whether tariffs will be reduced in exchange for negotiated concessions or whether annual review becomes the permanent framework for North American trade. The uncertainty is likely to persist through the coming months as companies make investment and hiring decisions in the absence of long-term trade stability.