Shifting trade policies pose challenge for Texas, says Dallas Fed's Southwest Economy

For Immediate Release: March 25, 2019

DALLAS—As the nation’s largest exporting state, Texas faces mounting pressure from shifting trade and tariff regulations, according to the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.

Texas exports have soared since 2016, Jesus Cañas and Stephanie Gullo write in “Position as Top Exporting State Exposes Texas to Shifting Trade Policy.” Moreover, since 2000, the state has derived 67 percent of its export growth from manufacturing.

“However, the state’s comparative advantage in the global marketplace has come under growing pressure,” the authors write. “A shift in U.S. trade and tariff regulations threatens to directly and indirectly contribute to increasing costs for many leading Texas export sectors that could benefit competitors.”

Mexico and Canada are the state’s No 1 and 2 export destinations, respectively, followed by China. As the main intermediary between the U.S. and Mexico, Texas holds a comparative advantage in intermediate goods exports, according to the authors.

“For Texas, trade openness has been favorable on net given that Texas exports have thrived, particularly since implementation of the North American Free Trade Agreement (NAFTA) in 1994,” the authors write. “Texas intermediate goods exports gained global competitiveness due to the state’s proximity to Mexico’s maquiladora industry, the backbone of U.S.–Mexico intra-industry trade.”

However, trade uncertainty and new and increased tariffs could hurt the state’s ability to compete globally, according to the authors.

“The future direction of Texas manufacturing exports hinges on trade policy,” they write. “The state is poised to draw further benefit from its location and resources, gaining market share worldwide in its industries of comparative advantage. However, disadvantageous trade policies could cause the state to lose ground to its competitors, perhaps curbing manufacturing employment and the state’s prosperity.”

In this issue’s Spotlight article, Benjamin Meier and Jesse Thompson examine why Texas lags the nation in residential solar capacity per capita despite ample sunshine and record electricity demand.

Also in this issue, Keith R. Phillips and Judy Teng provide a look at the state’s economic outlook in “Lower Oil Prices, Tight Labor Markets to Restrain Texas Growth in 2019.” Southwest Economy goes “On the Record” with Dallas attorney Tom Luce, who discusses Texas 2036, which aims to create a policy roadmap for Texas as it heads toward its bicentennial. And, the latest “Go Figure” infographic explores how the shale revolution increases the global competitiveness of Texas refiners.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
Email: jennifer.chamberlain@dal.frb.org