‘A Tale Of Two Sides:’ Trump Tariffs Could Lead To Wildly Divergent Trends For Texas Metros

President-elect Donald Trump’s planned tariffs on imported goods could drive nearshoring and reshoring efforts, turbocharging a domestic manufacturing revival already underway in the Dallas-Fort Worth area.

The plan could also lead to supply chain disruptions and retaliatory tariffs that would see imports dry up at Port Houston, tanking the economy of Texas’ largest southern city. 

Or none of that could happen.

A plethora of “what if” scenarios and a network of possibilities await the state’s largest metros in the wake of tariffs Trump promised to administer during his next term in office. And the only certainty is that cities like Dallas and Houston are in line to be among the most impacted metros in the country.

“It’s a tale of two sides [because] we don't know how it's going to play out yet,” LanCarte Commercial Managing Director Paul Tesdal said. “Nobody has a crystal ball.”

Trump has said he would implement a 10% universal tariff and a targeted 60% punitive tariff on goods originating from China. 

Following his decisive victory in the Nov. 5 presidential election, Texas commercial real estate insiders initially reacted with optimism for what the planned tariffs could mean — especially in DFW, which has already established itself as a national industrial CRE powerhouse, thanks in part to a rush on manufacturers locating facilities closer to the U.S. that predates the election.

But while there are potential wins to be had, there are also aspects of the plan that might spell losses across the state.

Tariffs on imported building materials like steel and lumber could increase construction expenses, and those higher costs could lead to a reduction in development activity or an increase in rents to offset expenses, Tesdal said.

Businesses that have to pay higher costs for imported goods might see their profitability reduced, striking at their ability to pay commercial rents, he said. Uncertainty around trade policies also risks hurting investor confidence, which may affect property values and transaction volumes.

Then there is the specter of inflation: Increases in construction costs and consumer pricing could send it creeping back up and slow commercial real estate development. 

Much of this depends on timing, Tesdal said.

“Trump’s tariffs could have a negative impact on the commercial real estate industry, but [that’s] kind of the opposite from what we're seeing from the market at this point,” Tesdal said. “Maybe that's because they don't think that [the tariffs] might get passed as quick or he might have overinflated what he was going to do for political rhetoric.”

The most likely scenario is Trump’s targeted tariffs get phased in over the first two years of his term, meaning the first inflationary impact likely wouldn’t be felt until 2027, according to Oxford Economics Associate Director Abby Rosenbaum. That potential phasing could give businesses time to stockpile goods, which would increase demand for warehouses throughout Texas.

Rosenbaum said that boost in demand would likely only be a short-term shot in the arm. 

Stockpiling is already driving warehouse demand in the state, with companies having already developed “just in case” plans, according to Ronald Rohde Law President Ron Rohde, an attorney specializing in industrial transactions and a former general counsel for a developer. 

“That's what a lot of businesses are adopting now as their philosophy – ‘just in case something happens,’” Rohde said. “With Trump being a definite wild card, ‘just in case’ is probably going to be the dominant philosophy going forward.”

With Republicans holding a majority in the U.S. Senate and U.S. House of Representatives, tariffs could be imposed much quicker than they were in 2016, M2G Ventures co-President Susan Miller said.

“Tariffs would significantly boost the U.S. manufacturing base, especially with critical industries such as steel and aluminum,” Miller said via email. “We see the tariffs increasing the cost of goods to consumers in the short- and middle-term as goods are moved out of China.”

Data released earlier this year from the U.S. Census Bureau shows Mexico has already surpassed China as the top source of imports into America for the first time in 20 years, a trend that could skyrocket.

The United States-Mexico-Canada Agreement became a turning point for trade relations between those three countries when it was passed in 2020. The legislation, which replaced the North American Free Trade Agreement, reduced tariffs and streamlined customs procedures, improving trade and leading to job creation on both sides of the border.

The rise of imports from Mexico shows nearshoring has already begun, and trade between Texas and Mexico totaled $272.3B last year, ranking Mexico as Texas’ No. 1 trading partner.

Rohde said that much of that has come from Chinese companies.

“These are Chinese companies using Chinese workers building the same stuff, it just happens to be located in Mexico,” he said. “The profits are still flowing to the same shareholders.”

Reshoring efforts have largely been limited to higher-quality products that need precise instrumentation and finished products that are bulky and costly to transport, Rohde said. 

Laredo, Texas, became ground zero for the nearshoring boom during the pandemic, but Dallas picked up a good chunk of that action in the years that followed. Nearshoring in Mexico could also drive demand for the kind of logistical infrastructure DFW offers.

“We might actually see an industrial boom for more demand for warehouse and logistics centers and light manufacturing facilities,” Tesdal said. “It could also strengthen that Texas-Mexico trade corridor. That could lead to higher lease prices because there's going to be more demand along those key trade routes.”

While nearshoring and reshoring could lead to U.S. job creation, extensive capital investment will be needed to establish or expand facilities, something Miller said would be “a challenge,” though she noted many U.S. companies are already taking steps to ensure their supply chains are shielded.

“Texas, and specifically DFW, will continue to be the benefactor of onshoring/nearshoring due to its central location in the U.S. and along the NAFTA corridor,” Miller said via email. “DFW will be a top pick for international companies adding locations in the U.S. due to additional tariffs.”

Companies like Champion Partners and Majestic Realty Co. began seeing interest from Chinese companies for manufacturing space in DFW even before the election was decided due to the prospect of Trump’s tariffs. 

“If their customers [are] very heavily U.S.-based or North America-based, then they're going to have to put it in the U.S.,” Champion Partners co-Managing Partner Steve Modory said during Bisnow's DFW Industrial Outlook event in Farmers Branch the day after the election. “Canada would be too expensive. If they build it in Mexico and ship it up here, you might see tariffs on that, too.” 

Of all the areas of Texas, Port Houston might have the most riding on how the tariffs shake out. Should the country fall into recession, it could have a huge impact on activity at the port. Higher prices on goods could create additional revenue for companies in the short term but slow the volume of imports longer term as consumer demand drops, Rohde said.

In such a scenario, Tesdal said the city would have its status as a specialized hub for energy-related manufacturing and petrochemical trade to fall back on.

There is also the possibility that Houston’s position as a coastal gateway for imports and exports could make it an even bigger winner than the Metroplex.

“If you have increased trade volume as companies reroute supply chains to Mexico, I do think Houston is probably logistically the most important place in Texas just because of the port and rail connections,” Tesdal said.

Texas’ other big metros could also see wins, Rohde said. San Antonio could benefit from amped-up manufacturing needs due to its ability to offer lower costs to companies. Austin could benefit from demand for software-heavy manufacturing thanks to its tech-trained workforce.

It is almost certain that American consumers will feel a pinch. The first effects of the tariffs aren’t likely to be felt until 2027, though Rohde expects they will be vocal about their complaints. Even so, it isn't something he’s too worried about.

“There's real risk to nearshoring and onshoring [as] it could make products more expensive for the average consumer,” Rohde said. “An extra $100 for an iPhone or an extra $20 for a rug, I'm OK with that. … I'm OK with prices going up if the net benefit is benefiting the U.S.”