Exports from Houston climbed in the first months of the year, but the rate of growth has slowed significantly as tariffs raise the costs of imports and exports and stronger dollar hurts sales and profits abroad.

The value of goods and services traded through the Houston-Galveston Customs District in 2019 is on track to grow 3 percent this year, down 19 percent in 2018, according to Commerce Department data analyzed by the Greater Houston Partnership, a business-financed economic development group.

The slowdown is driven by exports. In the first five months of 2019, the value of exports from Houston rose by $2.9 billion compared to the same period last year. But during the first five months of 2018, exports jumped $12.5 billion from the same period in 2017.

The smaller increase could be due to the tariffs, lower commodity prices, a global slowdown in manufacturing and the increasing value of the dollar. A stronger dollar raises the costs of American products in foreign markets, which reduces demand abroad, according to economists at the Federal Reserve Bank of Dallas.

In addition, many of Texas’ major exported goods have been caught in the U.S.-China trade war. China’s retaliatory tariffs have hit some of Houston’s top exports, including liquefied natural gas, chemicals, industrial machinery, plastics and motor vehicles. Those goods, in addition to crude oil, accounted for over 80 percent of all exports from the region.

As the trade war continues, U.S. firms have tried to find new customers for their products, but it’s not easy. While producers for commodities have been able to sell to other countries, firms that sell unique manufacturing equipment developed for specific customers are having a harder time, experts said.

“Where the product is specialized, that’s where the tariffs end up biting,” said Jesse Thompson, a senior business economist at the Dallas Fed.

If exports continue to slow, that could hurt the Houston economy, which has strong connections to global markets. The city is a hub for domestic companies, particularly in the energy sector, to ship products abroad.

The Houston-Galveston customs district exported goods to more than 200 countries and imported from 179 countries in the first five months of 2019, according to analysis by the Greater Houston Partnership. Mexico is the region’s top trading partner, with $8.5 billion in commerce from January to May, followed by China, with $6.1 billion in commerce during the same time period.

Texas firms need certain products from overseas and it is difficult to switch supplies, so many reported passing some of the tariff cost on to consumers, according to a recent survey by the Dallas Fed. Others reported finding new foreign suppliers and customers, particularly in southeast Asian countries such as Vietnam.

The “cooling” effect the tariffs have on capital expenditures is likely to have the most impact on the economy from the trade war, business economist Emily Kerr at the Dallas Fed wrote in a recent analysis. When conditions are uncertain, companies hold back on making long-term investments in new equipment, buildings and expansion that can create jobs.

In manufacturing, 19 percent of firms reported that the tariffs had decreased their capital spending plans, according to the Fed survey.

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“Beyond the realized tariff impact looms the unknown of future trade policy decisions, which is having a chilling effect on the business climate,” Kerr wrote. “This increased uncertainty reduces demand from customers, makes planning and decision-making more difficult.”

Erin Douglas covers business for the Houston Chronicle and writes for Texas Inc., a weekly Monday insert dedicated to covering the most powerful business leaders in Texas. Erin is from Colorado, and she studied journalism and economics. Previously, she interned for Bloomberg and The Denver Post.

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