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President Donald Trump has stepped back from his threat to immediately close the southern border. But local economists and business leaders worry plans to eventually seal the border or impose new tariffs could harm Iowa's entire economy. 

On Thursday, Trump warned he'd slap tariffs on cars coming to the U.S. unless Mexico works to stop the flow of migrants and drugs coming into the country — appearing to put his threat of immediately closing the southern border on hold. 

"Mexico understands that we’re going to close the border or I’m going to tariff the cars. I’ll do one or the other, and probably settle for the tariffs," Trump said at the White House.

It's been a difficult past year for farmers and businesses in the Quad-Cities and Iowa, where the agriculture sector meets major manufacturing operations. And the president's latest threats to trade are "the last thing we need," said Steve Lovejoy, director of operations at Sears Manufacturing.

Tariffs on Chinese and other imports have led to weak prices and an over-abundance of product for grain farmers and pork producers. They've also taken a bite out of earnings for manufacturers of all sizes, from Deere & Co. to smaller companies such as Black Cat Wear Parts in DeWitt. 

And now, flooding along rail lines and other transit routes also have slowed operations for some local companies, including Sears, which manufactures seating for agricultural, construction and industrial equipment and on-the-road trucks. 

"It's been a tough start to the year," Lovejoy said. "We have interruptions with China, and now this threat with Mexico is that last thing we need. With all of the automotive components that come out of Mexico, I don't know how they could close that border. It would put pressure on Mexico economically, but it would be a huge impact on our economy as well." 

Lovejoy said about 5 percent of the company's supplies come from Mexico, and officials are now looking at alternative options for receiving electrical components and other materials. But, he added, "it only takes one part to put pressure on everything." 

Economists and business groups across the country have warned against the closure of the southern border and additional tariffs, arguing the plans could threaten jobs and interrupt supply chains. Both the U.S. Chamber of Commerce and National Retail Federation argued against the border closure on Thursday. 

Chad Hart, an economist with Iowa State University, said unlike the trade dispute with China, "where it's highly concentrated within a few products or commodities," Iowa has a much broader trade relationship with Mexico.

"With China, it was all concentrated in soybeans and pork. But Mexico is a big market for us with corn, soybeans, pork, beef and more," Hart said. "Looking at the agriculture side, I'd almost argue there's no more important market than Mexico, because Mexico touches everything we do in Iowa." 

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Closing the border, Hart argued, could have "wide ramifications" in Iowa. He said halted trade could cause an immediate decline in commodity prices and a shortage in products, including fruits and vegetables, auto parts, appliances and electronics. 

Last September, Hart helped write a study with other ISU professors exploring the impact of trade disruptions on Iowa's economy. The study shows across all agricultural products, Mexico is the third-largest trade partner, with roughly $18 billion of agricultural trade each year. And Mexico is the largest international market for corn and soybean meal, capturing roughly 25 percent of U.S. corn exports and 20 percent of soybean exports. 

He said halted trade would lead to an over-abundance of the commodities Iowa exports to Mexico, plus a shortage of products Mexico ships to Iowa. That's worrying farmers and manufacturers, he said, who already are facing an over-saturated market and low commodity prices. 

"Farmers, as I describe it on the coasts of Iowa, are seeing the largest financial strains because of a combination of market problems: trade disputes, overproduction in the past years and then weather conditions," Hart said. "We're seeing them get squeezed basically on every front. In talking with farmers, they're more interested in growing trade as opposed to constraining it right now." 

He said farmers worried about a "flood of folks coming across the border are conflicted about this policy." 

On the manufacturing side, where employers are struggling to find workers with rare low unemployment, Hart said closing the southern border could make it even more difficult to fill jobs. And he said employers could be especially hurt during the warmer seasons when more seasonal jobs open up in construction and manufacturing, which are sometimes filled by immigrants.

"Even with the border open, it's a really tight labor market," he said. "You could argue it's sort of the opposite of agriculture commodity markets. In ag, there's plenty of supply to work with and that's hurting markets here. The flip side is with labor, because we don't seem to have enough. Anything that constrains the labor pool is problematic right now." 

On Thursday, Trump told reporters he would impose tariffs, calling it the "less drastic measure," before resorting to closing the border. He also said if Mexico doesn't stop the flow of illegal drugs at the border, he'd give the country "a one-year warning." 

Administration officials have been researching options for minimizing the economic impact of a border closure, in case Trump's threat becomes a reality. Media organizations have reported that could include keeping certain trucking lanes and ports open. 

The Associated Press contributed to this report. 

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