U.S. Small Business Owners Face Price Hikes and Investment Freeze as USMCA Renegotiation Drags On

By Kekeletso Nkele, small.news Assistant

(small.news) — Texas businesses with supply chains crossing the U.S.-Mexico and U.S.-Canada borders are absorbing rising costs and deferring investment decisions as trade policy uncertainty following the United States-Mexico-Canada Agreement’s non-renewal in July continues to weigh on planning across the state’s manufacturing, energy, and logistics sectors, reports News From The States.

Since July 1, when the Trump administration announced it would not renew USMCA and instead move the agreement to annual review, the U.S. has held bilateral talks with Mexico but not with Canada. President Trump has since announced a 10% tariff on a portion of Mexican imports and 50% tariffs on a range of Canadian goods, including cars and trucks. No timeline for a formal renegotiation has been confirmed.

$350 Billion in Annual Trade Rides on the Outcome

Mexico and Canada are Texas’ two largest trading partners. Two-way trade between Texas and Mexico reached $281.2 billion in 2024, while trade with Canada reached $69.2 billion — a combined $350 billion representing about 12% of the state’s total economy.

Texas’ primary exports to both countries are oil and natural gas, but its manufacturing sector — particularly automotive — depends on parts flowing across both borders. The state also receives significant direct investment from Mexican and Canadian companies, the full scale of which trade figures alone do not capture.

Tony Payan, director of the Claudio X. Gonzalez Center for the U.S. and Mexico at Rice University’s Baker Institute, said the uncertainty has the heaviest practical impact on businesses rather than governments, because companies making 5- to 10-year capital investment decisions cannot plan effectively when trade coverage is subject to annual renegotiation.

Aircraft Maker Says 25% Tariff on Canadian Engines Would Force Price Rises and Job Cuts

Air Tractor, Inc., an Olney, Texas-based manufacturer of agricultural and aerial firefighting aircraft employing more than 400 people, sources its engines from Pratt & Whitney Canada. The USMCA removes the tariff that would otherwise apply to those imports. The engine represents approximately half the total value of each aircraft the company makes.

Jim Hirsch, Air Tractor’s president and CEO, said a 25% tariff on Canadian aircraft engines — the rate that would apply if USMCA coverage lapses — would force a 12% price increase on the company’s planes. He said the resulting decline in orders could require significant staff reductions and supply cuts, and that the business might not survive a sharp, sustained loss of orders.

Investment Freeze Spreading Across the Border Region

Commercial real estate activity on both sides of the Texas-Mexico border has stalled, according to Brett Preston, managing partner of Cushman & Wakefield PIRES in El Paso. Preston said businesses are internalizing tariff and duty costs either as reduced profit margins or higher prices for end consumers — and said the companies most visibly affected are domestic, not foreign.

Jerry Pacheco, president of the Border Industrial Association of Santa Teresa, New Mexico, said the region has lost prospective investment it would otherwise have captured. He cited a Taiwanese automotive component manufacturer that purchased 30 acres to build a campus supplying Tesla with components but has not yet begun construction because of ongoing uncertainty about the future of USMCA.

Tom Fullerton, professor of economics at the University of Texas at El Paso, said the automotive sector faces the most immediate exposure because vehicle and parts manufacturing on both sides of the border is deeply integrated. He said planned factory upgrades and new capacity investments are likely to be deferred or canceled until the trade framework is clarified.

Toyota Move Is the Exception Rather Than the Rule

The most notable reshoring announcement to emerge from the trade dispute has been Toyota’s decision to shift 2,000 jobs from Tijuana to San Antonio, supported by a $303 million incentive package. Analysts said the move has attracted significant attention but does not reflect broader manufacturing behavior.

Payan said one of Trump’s stated goals has been to stimulate a manufacturing renaissance in the United States. Still, more than a year into the administration’s second term, manufacturing job growth has not materialized, and companies continue to withhold investment while waiting for policy clarity.

He said Trump is more likely seeking maximum negotiating leverage than working toward a termination of USMCA, noting that even a formal termination notice would leave the existing agreement in force for a further decade while annual negotiations continued. However, he said the administration currently has no clear incentive to bring the renegotiation to a close, leaving businesses to plan around ongoing uncertainty.