Uncertain Trade Future Rattles Texas Businesses

On July 1, 2026, the Trump administration declined to renew the United States-Mexico-Canada Agreement (USMCA), placing the bedrock North American trade pact under annual review instead. For Texas businesses that depend on seamless cross-border commerce, the decision has unleashed a wave of uncertainty that is freezing investment, stalling expansion projects, and threatening thousands of jobs across the state.

Mexico and Canada are Texas’ No. 1 and No. 2 trading partners, respectively, with combined two-way trade reaching $350.4 billion in 2024 — equivalent to 12% of the state’s entire economy, according to Houston Public Media. Texas’ key exports include oil, natural gas, and manufactured goods, particularly vehicles, with supply chains that often see components cross borders multiple times before final assembly.

The USMCA Decision and Escalating Tariffs

The USMCA, which replaced NAFTA on July 1, 2020, was established under a 16-year term requiring a joint review every six years. By declining to renew the agreement, the administration has triggered annual reviews, with the next one due by July 1, 2027. The decision follows escalating trade tensions that have unfolded throughout 2025 and 2026.

Just weeks after the non-renewal, on July 20, President Donald Trump signed three proclamations under Section 338 of the Tariff Act of 1930 — a law never before used — imposing 50% tariffs on Canadian motor vehicles, alcohol, and dairy products. These tariffs, detailed in a White House fact sheet, apply even to goods that would otherwise qualify for duty-free entry under the USMCA and take effect on August 19, 2026. A 10% tariff on a fraction of Mexican imports has also been announced, with bilateral talks between the U.S. and Mexico ongoing.

Texas Businesses on the Front Line

The impact is already visible across Texas industries. “The problem is not for Washington or Mexico City or Ottawa,” said Tony Payan, director of the Claudio X. Gonzalez Center for the U.S. and Mexico at Rice University’s Baker Institute. “The problem is for businesses, because a lot of these companies — manufacturers, energy companies — they’ve got long-term plans. They have to plan ahead 5, 10 years.”

Air Tractor, Inc., based in Olney, Texas, offers a stark example. The company manufactures agricultural and firefighting aircraft and relies on engines from Pratt & Whitney Canada. Those engines account for roughly half the value of each plane. If the USMCA were terminated, a 25% tariff on Canadian engines would force a 12% price increase, according to Air Tractor President and CEO Jim Hirsch. “It’d be tough. It would take deep cuts in staff and supply,” Hirsch said. “Whether we could survive it or not, not quite sure.”

Across the border region, the uncertainty is palpable. Jerry Pacheco, president of the Border Industrial Association, told The Guardian that projects have been put on hold. A Taiwanese auto component manufacturer purchased 30 acres to supply Tesla but has not built. Investment in new manufacturing and warehousing is at a standstill on both sides of the border.

Automotive Sector at a Crossroads

The automobile industry, deeply integrated across North America, faces particular disruption. Diego Marroquin of the Wilson Center noted, “What Texas and its neighboring Mexican states built over the past few years is a joint production platform, meaning they don’t just trade with each other — they build things together.” Tom Fullerton, economics professor at UTEP, warned that many automotive projects are likely to be mothballed.

One notable exception is Toyota, which announced on July 6 it would move 2,000 jobs from Tijuana to San Antonio, accepting a $303 million incentive package from the state and local governments, as Texas Public Radio reported. However, experts view this as an exception rather than a trend. “A year-and-a-half, moving into well into his second year, that has not happened. In fact, the U.S. has lost manufacturing jobs. Companies are withholding their investment,” Payan said, referring to Trump’s promise of a manufacturing renaissance.

Broader Implications

The trade turmoil comes against a backdrop of legal and political challenges. In February 2026, the Supreme Court ruled 6-3 that Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs was illegal, ordering $81 billion in refunds. The administration has since pivoted to Section 338 as an alternative legal basis, a move that may face further court challenges.

Canada, under Prime Minister Mark Carney, is retaliating with its own tariffs and pursuing energy diversification deals with Europe, including a recent LNG agreement with Germany. Ontario Premier Doug Ford has called for a tit-for-tat response: “If these tariffs proceed, Canada should respond tariff for tariff, dollar for dollar.”

What to Watch For

With the next USMCA review deadline set for July 1, 2027, and midterm elections approaching in November 2026, the political and economic landscape remains highly fluid. Key questions include whether bilateral talks with Mexico will produce a new agreement, whether the U.S. and Canada will open their own negotiations, and how the escalating trade dispute will affect consumer prices and supply chains across North America. For Texas businesses, the only certainty for now is uncertainty.