“It’s a very fluid situation right now,” said Cliffe Killam, president and CEO of Killam Development, one of Laredo’s largest industrial employers and landowners.

While under-construction projects are still moving full-steam ahead, Killam said tenants are hitting the brakes on leases as border markets brace for the impact of shifting-sand trade policy. Savills warned in a new report that the region is at an “inflection point” that could disrupt trade flows, burden manufacturers with higher input costs and put real estate decisions on ice.

Those invested in the border are shaking it off, arguing the two countries have become too economically entangled to easily unwind relationships.

Yet other sources told Bisnow that in addition to stalling previously fast-paced leasing, fear is mounting that a new era of trade that disadvantages the border could reshape supply chains again, shifting site selection decisions to manufacturing heartlands.

Investment flows are also beginning to slow to a trickle, according to Cruz Pérez Cuéllar, mayor of Juárez, El Paso’s sister city across the Rio Grande. Cuéllar said last week that foreign investors tell him they have money to spend, “but they cannot do it.”

“We’re at risk of damaging a real good thing,” said Tom Fullerton, professor of economics and finance at the University of Texas at El Paso. “And it’ll be particularly damaging for Texas because Texas is the one state economy that is most invested and dependent upon productive trade and manufacturing arrangements with Mexico.”

“We’ve hit a vacancy rate of less than 1% in the last couple of years,” Volkmer said. “It’s crazy.”

The past few weeks have created another kind of craziness.

The Trump administration’s first foray into tariffs in February hit neighbors to both north and south, slamming them with a 25% charge on imported goods. Those were paused 36 hours later, reimplemented in early March, then suspended again.

The April 2 flurry of reciprocal tariffs of up to 50% convulsed the economy, though the Trump administration last week pared those back to a baseline 10% for nations other than China. The White House carved out a lifeline for its closest neighbors, continuing to exempt products covered by the USMCA from tariffs, even as Mexico and Canada are subject to 25% tariffs for completed automobiles as well as steel and aluminum.

The topsy-turvy policy is making decision-makers dizzy, and many are pausing for clarity, according to Provident Realty Advisors Director of Development and Acquisitions Christen Vestal.

“It does seem like leasing has slowed tremendously right now trying to wait and see what the president’s going to do,” Vestal said of the Laredo market at a Bisnow event last month

Provident is expecting that to translate into lower rents for its speculative industrial developments.

Tariffs have already led car manufacturer Stellantis to pause operations in Canada and Mexico. Analysts at the Federal Reserve Bank of Dallas now estimate that Texas’ GDP growth could slow from an average of 3.2% to 1.7%, much of it attributable to decreased output and investment in the industrial sector along its border.

“As the nation’s leading trading state, Texas is highly exposed to tariffs,” Dallas Fed researchers Jesus Cañas and Diego Morales-Burnett said, based on surveys of manufacturers and service providers last month. “Uncertainty about trade policy and the prospect of higher tariffs has partly led to dimming company outlooks.”

A sense of chaos has set in — seen in three-to-four-hour traffic jams at the border, overflowing warehouses and surging produce prices — and confusion is eroding new trade lines, said Tony Payan, executive director of the Center for the U.S. and Mexico at Rice University’s Baker Institute for Public Policy.

Uncertainty Grinds Decisions To A Halt

Trade value along the Texas-Mexico border in cities like Laredo, El Paso, Hidalgo and Brownsville hit $540B last year, a 40% increase from five years earlier, according to Savills. Developers clamored to build along the 1,254-mile stretch in the wake of the USMCA, boosting new industrial inventory by 18% over that same period as rents soared and vacancy plummeted.

In Laredo, logistics investment soared from just $16.8M in 2012 to $313.5M by 2023. 2024 was another banner year for megabucks projects, including a $1B distribution center, warehouse and manufacturing port from Majestic Realty Co. and a 1M SF spec industrial project from SE Legacy Development that is part of a larger $7B development.

“We’ve hit a vacancy rate of less than 1% in the last couple of years,” Volkmer said. “It’s crazy.”

The past few weeks have created another kind of craziness.

The Trump administration’s first foray into tariffs in February hit neighbors to both north and south, slamming them with a 25% charge on imported goods. Those were paused 36 hours later, reimplemented in early March, then suspended again.

The April 2 flurry of reciprocal tariffs of up to 50% convulsed the economy, though the Trump administration last week pared those back to a baseline 10% for nations other than China. The White House carved out a lifeline for its closest neighbors, continuing to exempt products covered by the USMCA from tariffs, even as Mexico and Canada are subject to 25% tariffs for completed automobiles as well as steel and aluminum.

The topsy-turvy policy is making decision-makers dizzy, and many are pausing for clarity, according to Provident Realty Advisors Director of Development and Acquisitions Christen Vestal.

“It does seem like leasing has slowed tremendously right now trying to wait and see what the president’s going to do,” Vestal said of the Laredo market at a Bisnow event last month

Provident is expecting that to translate into lower rents for its speculative industrial developments.

Tariffs have already led car manufacturer Stellantis to pause operations in Canada and Mexico. Analysts at the Federal Reserve Bank of Dallas now estimate that Texas’ GDP growth could slow from an average of 3.2% to 1.7%, much of it attributable to decreased output and investment in the industrial sector along its border.

“As the nation’s leading trading state, Texas is highly exposed to tariffs,” Dallas Fed researchers Jesus Cañas and Diego Morales-Burnett said, based on surveys of manufacturers and service providers last month. “Uncertainty about trade policy and the prospect of higher tariffs has partly led to dimming company outlooks.”

A sense of chaos has set in — seen in three-to-four-hour traffic jams at the border, overflowing warehouses and surging produce prices — and confusion is eroding new trade lines, said Tony Payan, executive director of the Center for the U.S. and Mexico at Rice University’s Baker Institute for Public Policy.

Payan said tariffs will push companies to seek cost savings where they can. While they may continue operations as usual and pay them, many will start to explore whether they can shift supply chains and production to save money.

“They’ll swallow some of the tariffs, and they’ll have to calculate,” Payan said. “‘Is it better to open a Toyota plant for light vehicles in Texas or Georgia or whatever, or is it better to keep it in Mexico and pay the tariff?’”

In the best-case scenario that Trump trade policy is highly successful at spurring onshoring to the U.S., the future of border industrial markets hangs in the balance, Moody’s Analytics Chief Economist Ermengarde Jabir warned.

“The tariffs [could] cause such a push for domestic manufacturing that those warehouses along the border might not be in as high demand as they have been,” Jabir said.

Long-Term Pain Or Opportunity?

Industrial growth along the border first started to pick up steam in the late 1980s when Mexico joined the World Trade Organization, according to Fullerton. Its maquiladoras, or “twin plants,” industry capitalizes on the less expensive labor force in Mexico and the benefits of doing business in the United States.

The region got a jolt of adrenaline when the pandemic upended supply chains, followed by two consecutive U.S. presidents enacting trade policies  — one with a stick and one with a carrot — designed to incentivize companies to bring production back to North America.

But the surge in industrial development along the Texas-Mexico border really stems from economic competition between the U.S. and China.

“In the beginning, it was all about China,” Payan said. “A lot of companies on the border, on both sides, began to say, ‘This is going to be a great opportunity as the U.S. delinks and then eventually decouples its economy from China’s.’”

A dozen Chinese auto manufacturing plants have been set up in Mexico since 2019. Auto parts manufacturers and car makers accounted for just under half of the more than $14B invested there by Chinese corporations, according to a report from the Coalition for a Prosperous America.

So far, most automakers appear to be riding out the turmoil. But even before new tariffs hit, direct foreign investment in Mexican manufacturing was declining, dropping more than 30% in 2024 over the previous year. That could continue, hitting industrial markets along the Rio Grande Valley and the rest of the border where it hurts, especially if trade agreements are renegotiated, Fullerton said.

“If USMCA gets discarded, we’re going to have a lot of excess capacity on the south side of the border, and that may translate into excess capacity on the north side of the border as well,” he said.

Some of that capacity could be soaked up by additional domestic manufacturing, warehousing and transportation activities if bringing production home becomes top priority, he said. Texas’ comparatively cheap labor market, lax environmental regulations and weaker worker protections work in its favor in that scenario.

“Texas is going to be an ideal place if you want to shift all or partial production to the north side of the river,” Payan said. “Then the valley looks very good, and El Paso looks very good, and Laredo looks very good.”

South Texas is a poor area with a lot of people willing to work for less money. Compared to the nationwide average of $31.48 per hour, the average hourly wage in Laredo was $21.79 in May 2023, according to the U.S. Bureau of Labor Statistics. In El Paso, the average wage was $22.67. In McAllen, it was $20.98.

But while the Trump administration’s tariff motives remain mysterious, they are presumably designed to change things quickly. And supply chain changes don’t just happen on a dime: The manufacturing industry is more cruise ship than speed boat, Payan said.

“It turns very slowly,” he said. “Businesses have to begin to make these very, very long-term business calculations. Then if [the tariffs] go away later, they have to reverse.”

‘Pragmatism Is Going To Win Out’

With so much riding on border trade, including hundreds of millions of dollars in projects already announced this year, there’s a sense that a fix “just has to happen,” Volkmer said.