Fifty Years of Change on the U.S.-Mexico Border: Growth, Development, and Quality of Life

Chapter 4. Trade, Investment, and Manufacturing

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ chapter 4 trade, investment, and manufacturing Transportation costs play a major role in both domestic and international commerce. In general, water transport is usually the cheapest way to move goods over long distances, and air transport is most suitable for high-value, low-bulk items that need to reach their markets in the shortest possible time, yet the vast majority of U.S.-Mexico trade is hauled on the ground by trucks and trains. Although two-thirds of U.S. merchandise trade with the rest of the world is via water and air, and only one of the top five international gateway ports for the United States is a land-based port (Detroit), most goods shipped between the United States and Mexico move along the north-south highway corridors connecting the two countries through one of the many land-based points of entry.1 Not one of the top five U.S. ports of entry for commerce is critical to trade between the United States and Mexico; the border crossings between the two countries service only binational trade. The most significant ports of entry are Laredo–Nuevo Laredo, El Paso–Juárez, and San Diego–Tijuana. Since the mid-1980s, trade between the United States and Mexico has grown more rapidly than the total trade or the gross domestic product (GDP) of either country, and consequently, each has become a relatively more important trading partner for the other. In Mexico’s case, trade with the United States dominates its overall trade relations. For example, in 2005, Mexico shipped more than 85 percent of its total exports to the United States.2 U.S. exports are diversified across a much larger number of countries, but Mexico has grown to be the number two most important purchaser of U.S. products, second only to Canada. Though trade between the United States and China captures more headlines and has grown more rapidly over the past few years, as of 2005 it had not surpassed Mexico in trade, investment, and manufacturing 81 the value of its trade. However, at current rates of growth, China could overtake Mexico in 2006 or 2007, at least for merchandise trade.3 Along with a dramatic increase in trade since the mid-1980s, foreign direct investment (FDI) flows have also grown in size and importance. FDI is intimately linked to trade, since a significant share of cross-border trade is intrafirm trade.4 Many of the manufacturing plants that have sprung up along the Mexican side of the border during the past twenty-five years are either U.S.-owned or a joint venture between U.S. and Mexican partners, although an important but minor share is owned by Japanese, Korean, Taiwanese , European, and other interests from outside North America. For example, Sony, Panasonic, Samsung, Toyota, and quite a few other electronics and auto firms have manufacturing plants in northern Mexico, often in close proximity to a twin city plant along the U.S. southern border. FDI flows from Mexico to the United States are less frequently cited but are a significant part of the border economy, since Mexican investments in the United States are mainly in counties near the border.5 A majority of U.S. exports to Mexico originate in border states. In 2005, for example, more than 60 percent of all U.S. exports to Mexico originated in one of the four border states, Texas, California, Arizona, Presidio, Texas. 82 chapter 4 and New Mexico. Further, nearly 42 percent of U.S. trade with Mexico originated in Texas, while another 14 percent originated in California. Thus, two border states supplied 56.5 percent of total merchandise exports from the United States to Mexico.6 Similar estimates are not available for Mexican border states, but insofar as more than 45 percent of all exports by Mexico are from export-processing plants (maquiladoras), 80 percent of which are located in border states, it can be inferred that Mexican border states play a disproportionately large role in Mexico’s total exports to the United States.7 In sum, much of the economic activity linking the United States and Mexico is based in border states where the proximity of markets and the differing strengths of the U.S. and Mexican economies Anti-NAFTA sign, Customs House, Cuidad Acuña. trade, investment, and manufacturing 83 create a desirable combination of characteristics for locating many types of production. shifting national...