The U.S.-Mexico economic relationship is large, fast-growing, and unique; three important features that make it deserving of significant attention and cultivation. The border between these two countries constitutes both one of the greatest challenges and greatest opportunities to strengthen the competitiveness of the regional economy.
The first feature is relatively straightforward, although underreported. Mexico is the United States’ second largest export market and third largest overall trading partner. Bilateral commerce adds up to more than a half-trillion dollars per year, and U.S. exports to Mexico are worth more than U.S. exports to all of the BRICS (Brazil, Russia, India, China, South Africa) combined. Approximately six million U.S. jobs, and probably even more in Mexico, depend on bilateral trade. The simple magnitude of the U.S.-Mexico economic relationship makes it important.
The relationship is also dynamic. Both trade and stocks of foreign direct investment are more than six-times greater than what they were before NAFTA was implemented in 1994. Furthermore, since the recession, U.S. exports to Mexico have grown faster than exports to any other top trading partner, including China.
Finally, and probably most importantly, bilateral economic relations are unique. The United States and Mexico no longer create goods independently and then sell them to one another; they build things together. As a result of policy—Maquiladora Program, NAFTA—and geography, the United States and Mexico, along with Canada, have developed a joint manufacturing platform that is one of the most competitive on the planet. Supply chains crisscross the border, and many products make multiple border crossings during the manufacturing process. As a result, when the United States imports final goods from Mexico, they contain on average 40% U.S. content. The comparative figure for China is 4%. For the E.U. and Japan, it is 2%. Only imports from Canada, at 25% U.S. content, come close.
This demonstrates a unique degree of integration and interdependence, meaning that, despite political rhetoric to the contrary, the U.S. and Mexico are best understood as economic partners rather than competitors.
Nearly 80% of U.S.-Mexico trade crosses the land-border, making its efficient operation vital to the regional economy. And since many of the parts and materials used in regional production cross the border more than once, there is a multiplier effect on the costs of congestion, but also on the return-on-investment of border improvements.
The value of the border-economy, however, goes beyond its role as a transportation node in the North American manufacturing complex. The border region is also home to a mix of economic assets not found anywhere else in the world, and thus the region has a unique value proposition, an issue that the Mexico Institute explored in depth in its latest report. The mix of skill-levels, energy costs, and capital costs means that businesses operating in the region have, based on the location of a particular part of their operations, a menu of options with which to manage costs and risks.
Unfortunately, only a handful of industries have found ways to fully take advantage of the opportunities present in the border region. This is partly due to the difficulties of moving goods and employees back and forth across the border, but the binational communities that comprise the region must also do more to strategize joint economic development and cooperate to attract investment. Border communities must also come together to change the narrative about the border, from one based on violence and unauthorized migration, to one of economic opportunity.
