Louisiana's exporters are already coping with a full-blown trade war between the U.S. and China. But the Trump administration's latest tariff measures mean they now also face a looming threat of a trade fight with Mexico this summer.
At risk is more than $11 billion of trade between Louisiana and Mexico, mostly involving crude oil and petroleum products.
The U.S. as a whole brings in more goods from Mexico than it sends to its southern neighbor, but as of last year Louisiana had a huge trade surplus with the country, exporting $8.9 billion worth of products to Mexico versus imports of about $2.3 billion, according to government data.
On Thursday, President Donald Trump announced his decision to slap a 5% tariff "on all goods imported from Mexico" starting June 10 unless Mexico stops undocumented people from crossing the border into the U.S. The tariffs would rise by 5 percentage points each month through October, reaching as high as 25% if Mexico fails to act.
The president didn't specify what measures he was asking Mexico to take, but on Friday he broadened his demands, tweeting that "Mexico must take back their country from the drug lords and cartels. The Tariff is about stopping drugs as well as illegals!"
The sudden threat of a renewed trade conflict with Mexico, which took many officials on both sides of the border by surprise, might also threaten the U.S.-Canada-Mexico trade deal that was signed last year but has yet to be ratified.
U.S. tariffs on Mexican goods would likely mean higher prices for U.S. buyers, according to economists, and U.S. exporters could suffer should the trade pact fall through or should Mexico impose its own tariffs on U.S. goods in retaliation.
Mexico is Louisiana's second-largest trading partner after China. The two countries combined accounted for more than $15 billion of the state's $57 billion in total exports to foreign markets in 2017, according to U.S. government data.
The largest import from Mexico to Louisiana is crude oil, accounting for 43% of the total imports last year. A blanket U.S. tariff would mean refineries in Louisiana that process Mexico's crude oil would have to pay more for Mexican oil or scramble to bring in oil from other sources that might be equally costly.
That would be a headache for refiners, but the far larger risk would come from any retaliatory tariff from Mexico.
Louisiana's refineries sell gasoline, petrochemicals and other oil products to Mexico with a value more than six times that of the crude it buys. Refined oil and petrochemicals accounted for about $6.4 billion, or about 75%, of the state's exports to Mexico last year, according to WISER Trade, a Washington, D.C.-based think tank focused on trade.
Tyler Gray, president of the Louisiana Mid-Continent Oil and Gas Association, the state's largest energy trade group, said the state's oil sector relies on low trade barriers with other countries to support jobs and economic growth.
"Relationships with key allies, like Mexico, enable the oil and natural gas industry to continue providing affordable, reliable energy and jobs for Louisiana families," Gray said in an emailed statement. "The free flow of energy products across our borders is essential for economic growth."
The Woodrow Wilson International Center for Scholars, a research and policy group, estimates that more than 65,000 Louisiana jobs depend on trade with Mexico.
A wide array of politicians, including Republicans and members of President Trump's own cabinet, as well as business leaders, warned on Friday of the potential damage that would be done by a tariff war with Mexico, the second-largest U.S. trading partner after Canada.
The American Chemistry Council, a Washington-based trade group, said: "A tax on all imports from Mexico, followed by Mexico’s likely retaliation on U.S. chemicals exports, would erect huge cost barriers between American manufacturers and the products they depend on to succeed."
While much smaller than oil, gas and petrochemicals, Louisiana's agricultural exports to Mexico also are substantial. Corn, soybeans, rice and wheat last year accounted for $1.4 billion of exports to Mexico, and all but rice have seen substantial growth this year, with corn exports alone up 50% year-to-date, according to WISER Trade.
There has been "a perfect storm of challenges in farm country" this year, said Kyle McCann, a spokesman for the Louisiana Farm Bureau. Historically high water levels have hurt crops, and the China trade war has curbed farmers' ability to secure a market for their products, he said.
"We can’t afford more uncertainty," said McCann. "I think we’re all guarded in terms of how Mexico might respond — (but) we’re already in the production phase of the season. When you plant you see what the market conditions are, but we’re here in mid-season and the markets may very well change."
Tariffs on imports from Mexico, if implemented, could have immediate consequences for smaller operators, like Southside Produce Market, a fifth-generation fresh food wholesaler on Perkins Road in Baton Rouge.
“When (the Trump Administration) was talking about shutting down the border we saw an increase (in the price of avocados) and now we’ve seen another increase,” said Hayden Pizzolato, president of Southside, who reckons the price of a crate of avocados has jumped from $30 to $55 amid the trade spat.
Robert Melanson, director of international trade for the Lafayette Consolidated Government, noted that a lot of Lafayette constituents doing business with Mexico are small and medium-sized operators, such as engineering firms that work with Mexico's offshore oil and gas industry.
"Mexico is extremely important for Lafayette because it’s a close neighbor and we do a lot of oil and gas business with the coastal states, Veracruz and Tabasco," Melanson said.
Also threatened, he said, could be plans that Louisiana and Mexico have been negotiating to bring Mexican engineering students to more than a dozen Louisiana universities to study, including the University of Louisiana at Lafayette.
Advocate staff writer Tim Boone contributed to this report.