The Texas economy may bear the brunt of plans by the Trump administration to impose tariffs on Mexico and other countries and crack down on undocumented migrants.
Moody's Ratings last week reported those moves were among several federal policy changes that have credit negative implications for public finance.
Triple-A-rated Texas and other states with close trade ties with Mexico and Canada or have large immigrant populations would be affected.
Potentially broad tariffs would impact consumers, who would end up paying the cost, and result in slowing spending, which would weigh on state and local sales taxes, Moody's said in a report.
"Additionally, rising costs of construction materials would necessitate revisions of cost estimates for large infrastructure projects, impacting both public and private sectors," the rating agency added.
In 2024, Texas was the largest state exporter, sending $455 billion of goods to other countries, with Mexico, its biggest trading partner, receiving 27% of the exports, according to the
Mexico was also the state's
In a February forecast that projected slightly lower job growth for Texas this year, Dallas Federal Reserve Vice President and Labor Economist Pia Orrenius
"We're really in the line of fire here on tariffs," she said.
Texas, due to its location and economic integration, would experience "by far" the largest losses of any state in the case of sustained 25% tariffs on Mexico and Canada, according to Ray Perryman, president and CEO of The Perryman Group, a Waco, Texas-based economic and financial analysis firm.
"We estimate that Texas would lose more than $45 billion in annual output and more than 360,000 jobs, with the vast majority stemming from disruptions in trade with Mexico," he said in an email.
Texas and Mexico are basically a single economy, according to Raymond Robertson, director of the Mosbacher Institute for Trade, Economics and Public Policy at Texas A&M University, who said the on-again, off-again tariffs sow uncertainty for business, while their imposition will raise costs for consumers, slowing their spending, which would lead to lower revenue and budget cuts for Texas.
"That's a big part of Texas GDP. Tariffs are taxes, taxes raise prices, and when prices go up, consumers buy less," he said.
In Texas, which does not tax income, the sales tax is the biggest revenue generator for the state general fund budget. A record $39.4 billion surplus at the beginning of the fiscal 2024-25 biennium was fueled in part by sales tax collections boosted by inflation. In January, Texas Comptroller Glenn Hegar projected
At that time, Hegar said he expected economic growth for the state in line with historic norms, warning that potential economic disruption could result from changes in federal policies and other events.
Mass deportations would have a bigger impact on Texas due to its location, according to Perryman, who said 8% to 9% of the state's workforce is undocumented, including roughly 40% of construction workers, 50% of agricultural workers, and 30% of hospitality workers.
Stricter immigration policies could compound demographic and workforce challenges with states, local governments, and healthcare organizations "particularly vulnerable because of their dependence on a stable and growing workforce," the Moody's report said.
Charter schools in states with big immigrant populations like Texas and with high percentages of English language learners could experience state aid reductions, narrowed operating margins, and financial difficulties, the rating agency added.
Mass deportation would
Texas Gov. Greg Abbott, who welcomed the Trump Administration's deportation and border security efforts, is seeking federal reimbursement for more than $11.1 billion he said the state spent on measures to deter illegal border crossings during the Biden Administration.
The Republican governor also transported more than 119,000 migrants from the southern border to six "sanctuary cities" in other states since 2022. Sanctuary cities typically decline to use their own funds and personnel to
The U.S. House Oversight and Government Reform Committee grilled mayors from Boston, Chicago, Denver, and New York last week over migrant costs, which ranged from $6.9 billion in New York City to $79 million over the last two and a half years in Denver, as well as their cooperation with federal immigration authorities.
"The peak of immigrant arrivals was overwhelming to our resources, and heartbreaking for our community, as residents would witness individuals, families, and even children shivering on the corner in the middle of winter," Denver Mayor Mike Johnston told the committee. "We had to respond immediately. We were not going to leave kids on the side of the road. It was a moment to step up and act. And we did."
Migrants financially impacted other Denver public entities as well.
Denver Health, Colorado's sole safety net healthcare provider,
Public schools in the Denver area enrolled 16,197 migrant students since December 2022 at an annual cost of $228 million, according to
A bill introduced in the U.S. House in January dubbed the No Bailout for Sanctuary Cities Act
Business groups are pushing back against state measures that could impact their bottom line.
In the Utah Legislature last month, a bill
"We just cannot get all the workers that we need, especially in year-round industries like dairy, where we don't even have access to a legal immigration program, so mandatory E-Verify without addressing these realities could severely impact our ability to maintain a stable workforce and keep producing food for Utah," Terry Camp, vice president of public policy at the Utah Farm Bureau Federation, told the House Business, Labor, and Commerce Committee.
