The inter-related nature of the economies of Texas and Mexico is beyond question. Trade represents a crucial source of business activity for virtually all regions of the US, particularly Texas. Strong cultural and familial ties link Mexico with the border region and beyond. The flow of goods and people is vital to the ongoing economic health of families, corporations, cities, regions, and states.
Thousands of Mexicans cross the border every day to shop in retail outlets in the US. Other Mexicans cross the border (and legally stay) to work, and many affluent Mexican families send their children to US schools. Mexican citizens are also a substantial element of the housing market in several border communities. In fact, empirical evidence indicates that many US border cities are actually more dependent on economic conditions in Mexico than in the US.
Key facets of these linkages are the maquiladora plants, which are important to both the Texas and Mexico economies. Maquiladoras came into existence along the border in the mid-1960s. Originally, the plants were permitted to import parts, equipment, and other supplies free of tariffs as long as their output was exported back to the US. In this way, the relatively low-wage Mexican labor force could be utilized for activities such as final assembly and other labor-intensive work. While NAFTA changed these dynamics to some degree by eliminating most of the tariff considerations, the differences in the US and Mexican workforces and business climates continue to offer benefits to plants located proximate to the border.
According to a report by the El Paso Branch of the Federal Reserve Bank of Dallas, in 2001, there were 3,735 maquiladora plants employing almost 1.3 million people. However, the facilities were hit hard by economic downturns in the US and Mexico, as demand for their products fell. Between 2001 and 2003, employment levels dropped by more than 18% and an estimated 280,000 jobs were lost. More recently, employment has rebounded for these plants, and in the past year, almost 45% of the lost jobs were recouped; nearly 74,400 jobs (7.1%) were added along the Mexican side of the border and approximately 21,000 were added on the Texas side.
The effect of these operations is apparent on the Mexican side, with nearly 78% of maquiladora employment originating from the northern, neighboring states. From the perspective of Mexico, these jobs represent high-paying manufacturing positions, and the border cities on the Mexican side are some of the most dynamic in the country. Even though the Texas side of the border experienced rapid growth in population, income, and employment through the 1990s, the area remains plagued by high unemployment and low income levels relative to the rest of the state. Maquiladora operations and the resulting stimulus to supplier networks and other vendors in Texas have led to an increase in opportunities for workers and companies alike.
Maquiladoras have been crucial in the reorientation of the Mexican economy toward growth through export production. Over the past two decades, the share of international trade in Mexico’s gross domestic product has grown substantially. Cities located across the border from each other (such as El Paso-Juarez, Laredo-Nuevo Laredo, Brownsville-Matamoros, and McAllen-Reynosa) have developed symbiotic working relationships in which factors of productivity in one city, such as employment and industry, are mutually beneficial to the other. Maquiladoras are a natural and important outgrowth of these connections.
While maquiladora operations are obviously vital to the Mexican economy, they are also critical to firms on the US side. The movement of goods and people across the US-Mexico border is crucial to the economic wellbeing of both nations. Products from Mexico are utilized in plants all over the US, and exports to Mexico originate from virtually every state in the nation. However, Texas is clearly more closely linked to Mexico than any other area. The recent upswing in maquiladora employment is evidence of the continued viability of such operations. While they are dependant on business cycles in the US and Mexico, maquiladoras offer substantial benefits to communities on both sides of the border and are an important element of the global competitive dynamics between the US, Asia, and emerging countries.