Exploring the US-Mexico Trade Relationship, Part 2

Despite Trump's tough talk on Mexico, U.S. states have a different imperative.

Summary
Public demands from states along the U.S.-Mexico border – California, Arizona, New Mexico and Texas – will prove to be the biggest opposition against any changes the administration of U.S. President Donald Trump may try to make regarding trade with Mexico and related border controls. These states’ economies depend on bilateral trade with Mexico. Elected officials from the border states will feel more pressure to respond to their states’ needs rather than to support federal plans that would potentially jeopardize local economies and their own re-elections.
  • U.S. states along the Mexico border have economies that rely heavily on Mexico as both an export market and for integrated production of goods.
  • Together, these four state economies account for a quarter of U.S. gross domestic product.
  • Border states have the largest numbers of eligible Hispanic and Latino voters nationwide.
  • Politicians in border states must meet the needs and demands of their electorates – even if they contradict the federal government’s plans and desires – or risk losing re-election.
Introduction
Last week’s Deep Dive evaluated U.S.-Mexico trade relations at the national level by examining four case studies. This week, we follow up with an evaluation of select U.S. state economies and their relationships with Mexico. At the national level of the U.S.-Mexico bilateral trade relationship, the United States has more comparative leverage over Mexico in trade negotiations. However, analyzing this relationship at the state level shows that there are economic and social incentives for the U.S. to avoid aggressively pursuing the reintroduction of trade barriers – financial or physical – against Mexico.
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Construction workers continue work on the United States-Mexico border fence on a massive construction project to revamp federal facilities at the San Ysidro Port of Entry border crossing on Jan. 26, 2017 in San Ysidro, California. President Donald Trump has ordered work to begin on building a wall along the Mexican border, angering his southern neighbor with his hardline stance on immigration. DAVID MCNEW/AFP/Getty Images

While tension over U.S.-Mexico relations is spurring unity and nationalism in Mexico, the same issue proves to be a divisive one in the U.S. There is a lack of consensus and unity in the United States over the question of trade with Mexico. Some U.S. states, such as Michigan, have large populations that attribute job loss to close production and trade ties with Mexico. At the same time, the economic livelihoods of other states – particularly California, Arizona, New Mexico and Texas – strongly depend on trade flows with Mexico. These states are very likely to oppose any changes in U.S.-Mexico trade that are deemed detrimental. Eleven of the top 20 U.S. cities that export to Mexico can be found within these four states. The border states have a combined GDP of $4.5 trillion and account for a quarter of total U.S. GDP, according to the U.S. Bureau of Economic Analysis. Because of their economic weight and size, these border states’ economic imperatives will be the main source of opposition facing the Trump administration when making changes to the North American Free Trade Agreement (NAFTA) or Mexico policy in general.
Border Crossings
Eighty-five percent of trade between the U.S. and Mexico takes place by truck or railway, according to the U.S. Bureau of Transportation Statistics. Given that most of the goods exchanged between Mexico and the U.S. pass through the shared land border, it is important to understand the geography and crossings. The U.S.-Mexico border possesses two geopolitically significant features. First, the border measures approximately 2,000 miles and is one of the world’s longest continuous binational borders. Second, there is an absence of physical barriers along this border, making it relatively easy to cross. The border follows the Rio Grande River in places, but this body of water does not impede crossing in the same way that a sea or ocean would. Additionally, the land is relatively flat along the border, with no mountainous barriers that would make passage difficult. Furthermore, the desert climate on both sides of the border does not particularly impede trade; modern vehicles, technology and logistics have largely overcome this climatic factor. These natural geographic features facilitate the flow of land trade, although man-made physical barriers (fences or walls) do exist at certain parts of the border.
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U.S. government trade figures estimate two-way trade across the border at $1.4 billion per day. In addition to aquatic ports like San Diego and Houston, there are 25 major ports of land entry between the U.S. and Mexico. Among these are 39 crossing points (high-volume locations such as Laredo, Brownsville and Nogales have multiple crossing points), of which 22 are open all day, every day. The majority of U.S.-Mexico land ports divide traffic into three different categories: standard, Ready Lane and Secure Electronic Network for Travelers Rapid Inspection (SENTRI). The standard lanes are the slowest, with wait times of up to several hours, because all processing takes place manually at the point of entry. In contrast, the Ready Lane uses radio frequency enabled identification documents that can be read by a computer instead of being manually entered into a system used by the U.S. Customs and Border Protection (CBP). The SENTRI program is reserved for low-risk crossers who have passed a security clearance, and it aims to have participants cross the border in 15 minutes or less. CBP also is working to enable a system that would allow trade cargo to be cleared at its point of origin in Mexico to expedite border crossing times, particularly for commercial vehicles where profits depend in part on just-in-time deliveries. Border crossing delays can cost billions of dollars in trade. In 2011, Bloomberg estimated that delays at the U.S.-Mexico crossing cost the U.S. economy up to $7.8 billion annually.
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US Border States
The question of U.S.-Mexico bilateral trade is often discussed at the national level; the first part of this two-part series is an example of such a discussion. However, the U.S. is composed of 50 individual states, and each one is a separate political and economic entity. Within the U.S. federal system, the states enjoy a large degree of power as Washington, D.C. is a city constructed for government administration but does not hold much power. The real power in the United States exists in various hubs scattered throughout the country and in dynamic regional economies that are relatively evenly matched. The U.S.’ energy capital is in Texas, its financial capital is in New York, its agricultural capital is in Illinois, and its technology capital is in California, to highlight some examples.
Within this system, the national government does not closely regulate which specific economic activities U.S. states pursue, nor does it specify destinations for international trade. Mexico figures as a prominent destination for U.S. exports in general and ranks as one of the top three export destinations for 33 of the 50 states. However, Mexico only ranks as the top export destination for four states. It is no coincidence that these four states are those along the U.S.-Mexico border. The geographic proximity of California, Arizona, New Mexico and Texas to the Mexican border heavily impacts these states’ economies and demographics, and politicians’ stances as they relate to national politics. Mexico, too, is made up of individual states. However, as noted earlier, as to the question of U.S.-Mexico bilateral trade, these states share a general consensus that supports free trade between Mexico and the U.S. Due to the Mexican states’ unity regarding bilateral trade (they all agree that keeping a free-trade system in place with the U.S. is beneficial overall), a state-level discussion of Mexico’s economy is not necessary in the same way that a state-level discussion is necessary for the U.S.
California
California’s $2.48 trillion GDP in 2015 was larger than the GDP of most countries. If it were its own nation, California would rank around seventh in the world for GDP size. Exports account for about 11 percent of the state’s GDP, and Mexico is the leading destination for Californian exports. In 2015, the U.S. Census Bureau reported that California’s exports to Mexico totaled $26.79 billion, and California’s imports from Mexico totaled $45.09 billion. Three of the top five categories for California exports are the same as imports, and all of these categories reflect high-value-added goods. This overlap of categories – computer and electronic products, transportation equipment and electrical equipment, appliances and components – suggests an integrated production framework for goods. This means that California and Mexico depend on access to each other’s markets to keep their respective economies going.

The San Ysidro Port of Entry in California helps to benchmark the high volume of vehicles, persons and goods that cross the border daily. San Ysidro is the busiest land port in the Western Hemisphere and remains continuously open. On any given day, 70,000 northbound vehicle passengers and 20,000 pedestrians are processed here. According to the U.S. Customs and Border Protection, the northbound capacity of this border crossing now has 24 lanes for passenger vehicles and 29 lanes for pedestrian traffic.
Arizona
Arizona boasted a $290.9 billion GDP in 2015, with about 7.7 percent coming from exports. Arizona’s exports to Mexico in 2015 were valued at $9.2 billion, while imports from Mexico totaled $7.6 billion. Among the top five import and export products, there is overlap in two categories: electric machinery and nuclear reactors, and boilers and machinery. This suggests a moderate level of production integration between Arizona and Mexico.
New Mexico
New Mexico’s GDP was $93.3 billion in 2015, with about 4 percent of that derived from exports. New Mexico’s exports to Mexico in 2015 were valued at $1.7 billion, while imports totaled $296 million. Among the top five imports and exports, there is overlap in two categories: electric machinery and nuclear reactors, and boilers and machinery. This indicates a moderate level of production integration between New Mexico and Mexico.
Texas
Texas had $1.48 trillion in GDP in 2015. Nearly 17 percent of this was derived from exports, with Mexico as the leading destination. In 2015, the U.S. Census Bureau reported that Texas’ exports to Mexico totaled $92.49 billion, and imports from Mexico totaled $84.01 billion. Four of the top five categories for Texas exports are the same as imports, and all of these categories reflect high-value-added goods. This overlap of categories – computer and electronic products, transportation equipment, petroleum/oil products and electrical equipment – suggest a highly integrated production framework between Texan and Mexican counterparts. In other words, both Texas and Mexico depend on access to the other’s markets to keep their economies going.

In Texas, 56.4 percent of the state’s trade occurs by land, and the Laredo border crossings are the busiest in the state. The Texas Comptroller General’s Office reported that border crossings in the Texan city of Laredo accounted for $204 billion (32 percent) of the state’s international trade for 2015. In other words, the $204 billion that passed through the Laredo border was equivalent to 12.5 percent of the state’s entire GDP for the year.

The sheer size of the California and Texas economies – the largest and second largest state economies in the U.S. – speak for themselves in terms of economic clout. Though smaller than the economies of the other border states, Arizona’s and New Mexico’s economies are still significant. The American Enterprise Institute used 2015 GDP figures to compare U.S. state economies with GDP levels of foreign nations. In this report, Arizona’s GDP was roughly the size of Israel’s, and New Mexico’s GDP was equivalent to Ukraine’s. Together, these four U.S. state economies are highly dependent on fluid trade with Mexico. Jeopardizing the economic growth of these four states by implementing trade measures against Mexico would mean jeopardizing a quarter of the U.S. economy.

As we saw in Part 1 of this Deep Dive, Mexico cannot apply enough pressure on its own to encourage the United States to retain NAFTA or otherwise engage in free trade. However, the U.S. border states have significant leverage that they can use to influence the federal government’s behavior. These states’ interests – in favor of free trade – align with Mexico’s, so it is likely that Mexico will be relatively unaffected in the foreseeable future.
Demographics
In addition to economic ties, border-state demographics also influence state-level relations with Mexico. The U.S. states along the southern border have high levels of biculturalism with Mexico. While biculturalism may exist in other U.S. states, it is not as concentrated or Mexico-specific as it is in the border states.
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New Mexico is the U.S. state with the highest percentage of Hispanics among the total state population, according to Pew Research Center. (Note: For the following statistics, we use the terms Hispanic and Latino according to what was used in the original studies we cite.) The state is home to 994,000 Hispanics, accounting for 48 percent of the state’s population. Among New Mexico’s Hispanic community, 83 percent of people were born in the U.S. and 67 percent are of Mexican origin. Similarly, Arizona’s Hispanic population of 2,056,000 accounts for nearly a third of its total population. Among Arizona’s Hispanic community, 72 percent of people are U.S.-born and 90 percent are of Mexican origin. In numeric terms, Texas has the second largest Hispanic population in the U.S., at 10,405,000. This accounts for 39 percent of Texas’ total population. Among the state’s Hispanic demographic, 70 percent were born in the U.S. and 87 percent are of Mexican origin.

With a Hispanic population of 14,991,000, California is home to the largest Hispanic population in the U.S., according to the Pew Research Center. Eighty-four percent of these Hispanics are of Mexican origin. In Los Angeles alone, 1.2 million residents are of Mexican origin. If they were located in Mexico, the Mexican population of Los Angeles would rank as the eighth largest city in the country (after Mexico City, Ecatepec, Tijuana, Puebla, Guadalajara, León and Juárez). Hispanics account for 39 percent of California’s total population and contribute 48 percent of the state’s total number of births. Approximately two-thirds of California’s Hispanics are U.S.-born citizens and one-third are foreign-born. Additionally, California is one of the U.S. states with the highest concentrations of Spanish-speakers. In Southern California, between Los Angeles and the Mexican border, 40 percent of the population speaks Spanish.

This growing prevalence of biculturalism along the U.S.-Mexico border is not an inherent problem for the United States. Many Hispanics in these states consider themselves to be Americans. However, biculturalism becomes potentially problematic when the dominant culture (in this case, American culture) ignores the minority culture (Mexican) or, in a more extreme case, takes steps to marginalize the minority culture. This can take many shapes, including ignoring public opinion of minority cultures and taking economic or political actions that benefit the dominant culture at the cost of the minority culture.

Creating administrative or physical barriers against U.S.-Mexico border trade would also be culturally disruptive in the border states, where individuals regularly cross the border as part of their everyday lives. According to the latest annualized figures from the U.S. Bureau of Transportation Statistics, nearly 211.7 million people crossed the border in personal vehicles in 2015 and 41.18 million crossed the border as pedestrians.

Moreover, the four border states led the country with the largest share of Latino voters as part of the total eligible voter population in 2016, according to Pew Research Center. New Mexico leads the rankings with 40 percent of eligible voters being Latino. Texas ranks second, with Latinos accounting for 28.1 percent of eligible voters, while California is close behind with 28 percent. In Arizona, 21.5 percent of eligible voters are Latino, putting the state in fourth place. These high percentages of Latino voters mean that biculturalism can play a role in border-state election results.
Impact on Internal US Politics
Senators and representatives must respond to their constituents’ needs or they will be voted out of office. For this reason, elected officials tend to be sensitive to the demographics present in their districts. In the border states, this often includes looking out for the interests of local businesses and the Hispanic population. To do this, senators and representatives are more likely to adopt a position that is favorable to their constituents than to adopt a position favorable on the national level.

The political posturing of elected representatives from these border states is already reflecting this stance. Of particular interest are the stances of elected members of the Republican Party, which traditionally supports some type of border security. Many Republicans in border states agree on the point of improving border security measures but have come out against Trump’s plans for Mexico, which include building a border wall, because of the threat these plans pose to local economies.

California’s state government fully understands the strong connection between the state’s economic activity and trade with Mexico. It also understands that any measures to reduce the flow of U.S.-Mexico trade would negatively and notably affect the state’s economy. The state’s top three officials – Governor Jerry Brown, Lt. Governor Gavin Newsom and Attorney General Xavier Becerra – have not only been strong critics of the recent executive orders that impact immigration and call for the erection of a border wall, but they have also stated they will pursue legal means to impede the execution of such orders. At the federal level, Democratic California senators Dianne Feinstein and Kamala Harris have spoken out against Trump’s latest policies. Among California’s 53 members in the House of Representatives, only 14 are Republicans. Of the 14 California Republicans, only three (Devin Nunes, Ed Royce and Jeff Denham) have made public comments to express mild backing or qualify their “support” of the Trump administration.

On the political front, Arizona’s two Republican senators, John McCain and Jeff Flake, have been some of the nation’s most vocal elected officials against Trump’s potential trade and immigration measures against Mexico. The former said that the planned immigration changes were improperly vetted, and the latter called them “unacceptable.” The four Democrats that represent Arizona in Congress have fallen along party lines, opposing Trump’s executive orders and other plans. Of Arizona’s five Republican representatives, three have expressed their support for Trump’s wall along the Mexican border. However, Martha McSally tempered her support by saying she favored the measures because they support immigration and security reforms, but she does not necessarily support a comprehensive immigration ban or stoppage.

On the whole, New Mexico’s federal lawmakers do not support Trump’s plans for Mexico trade and immigration in their current forms. Democratic Senator Tom Udall said that he conceptually supports the idea of improved border security, but he questions whether Trump’s current plan will achieve that. He also expressed concern over the potential for federal security officers to interfere with local operations. New Mexico’s other senator, Democrat Martin Heinrich, reacted to Trump’s plans by sponsoring a bill to protect the personal information of individuals registered under the U.S. DREAM Act. The state’s two Democratic representatives criticized Trump administration measures saying they jeopardize U.S. standing and lack specificity. The lone Republican representative, Steve Pearce, said that while the state does need a better border security system, a wall won’t work.

The Texan delegation to the U.S. Congress has not offered resounding support for Trump’s proposed border wall. In late December, the Texas Tribune published a compilation of the stance of Texas’ 36 lower house representatives. Among these, 11 belong to the Democratic Party. The Democrats unanimously expressed their opposition to a wall along the entire border. About half felt the idea was not to be taken seriously. The other half argued that security concerns can be dealt with through technology and that a wall does not address the greater problem of general immigration reform.

The responses are more nuanced on the Republican side of the aisle, but fall short of full support for Trump’s plans. Both Texas senators and 25 of its representatives are Republican, and they all fall into this camp. The Tribune noted that 40 percent of Texas Republicans in Congress failed to provide the news outlet with a public statement; two senators and 15 representatives did provide a statement. A general consensus exists among this group that more border security is merited. Some advocated better enforcement of the Secure Fence Act, which provides 700 miles of walls and fences along the 2,000-mile U.S.-Mexico border. Others called for new legislation. Many advocated for better use of technology and better-equipped border guards for increased control, noting that building a wall in certain parts of the state either does not make sense or is not feasible. None of the representatives who commented believe a wall alone would effectively deal with security issues at the border.
Conclusión
California, Arizona, New Mexico and Texas will pose the greatest challenges to the Trump administration’s initiatives for increasing tariffs on Mexican goods and building a wall across the entire length of the shared border. These state economies depend on trade with Mexico and account for a significant portion of the national GDP. The growing presence of a bicultural electorate in border states generally supports positive ties with Mexico as well. As a result, elected officials from these states will be forced to oppose any moves that hinder or discourage free trade with Mexico, both in terms of administrative and physical barriers. Alternately, they will face being voted out in the next election cycle. These states’ economic imperatives contrast sharply with the president’s plans for U.S.-Mexico trade and border relations and will be the leading trump card against Trump.
       

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