Toby Keith is ever the literalist, and when this song is viewed literally, I see it as being very racist. Toby Keith is very right wing, IMO.

Now, as to the question of Willie associating himself with this sort of thing, well. Willie has never been very progressive, much less PC, about race politics in America, or politics in general. Politically, he is fairly conservative, but his PR machine spins him in such a way that makes him appear liberal enough so progressive musicians will still associate with him. That PR spin has always presented Willie as an 'iconoclast'. The rugged individualist, outlaw cowboy. In reality, he is nothing of the sort. It is important to remember that it was Willie who invited his good buddies Guns and Roses to play at Farm Aid.

Willie is also very good at hitchin' his wagon to other musician/stars, to get attention for himself when he is being largely ignored by the music buying public. Which is pretty much all the time these days. He is far past the zenith point of his career, and his voice has gotten really, really bad. I don't understand why he is still touring, because I don't know anyone willing to spend money to hear him live anymore because of it.

Willie also smokes way too much dope to be very savvy or articulate politically, despite his involvement in Farm Aid. It should also be pretty obvious by now that Farm Aid largely works to benefit white farmers and ranchers, not Latino and black farmers and ranchers.

So my answer is, I'm not the least bit surprised that Willie Nelson would do this duet with Toby Keith. He can't carry vocals on his own anymore. Toby Keith is huge on the country circuit, so a duet with him brings some more money into Willie's bank account. And by now, Willie don't really give a shit if he offends anybody.