Economic Costs of the US‑Mexico Border Slowdown
By: Dr. M. Ray Perryman
Published in syndication May 08, 2019
Every day, nearly $1.7 billion in products cross the US-Mexico border. Trade volume has grown substantially, more than doubling over the past 20 years and up 55% between 2010 and 2018. In early 2019, in the midst of the ongoing trade war with China, Mexico emerged as the largest trading partner of the US. Millions of trucks cross the border each year, and delays at the border cause logistical problems. The current slowing on the US-Mexico border is reducing efficiency and could cost the US economy billions in output and hundreds of thousands of jobs if it persists.
We recently analyzed the total economic losses associated with the current border slowdown based on recent evidence regarding increased delays and structural issues. If these problems result in a one-third reduction in trade through border ports of entry that extends over three months, the cost to the US economy includes over $69.0 billion in gross product and 620,236 job-years (when multiplier effects are considered).
As a major exporting and importing state with an extended southern border, Texas is particularly hard hit by the slowdown. In fact, the state is responsible for about 35% of all trade with Mexico. We estimate that if the increased delays and structural issues reduce trade as detailed above, losses to the state would total nearly $32.6 billion in gross product and 292,566 job-years (when multiplier effects are considered). Along the Texas border, this dislocation would represent a 9.5% drop in output and a 9.8% drop in employment, including significant disruptions in local logistics and retail activity.
One reason border delays are so damaging for the economy is that they interrupt cross-border supply chains. Since the North American Free Trade Agreement was ratified decades ago, member nations have taken advantage of the low to no tariff environment to develop complex supply chains where intermediate goods produced in one country are imported for incorporation into final goods in another. Intermediate goods flow back and forth across the border to optimize advantages in workforce or infrastructure, and it is typical for supply chains of numerous industries such as automotive and medical device production to cross the border multiple times during the manufacturing process. Slowing at the border disrupts this pattern, causing harm to companies in both nations.
The economies of the United States and Mexico are inextricably intertwined to the benefit of both nations. In fact, facilitating integration would lead to greater growth on both sides of the border. By contrast, delays at the border can cause losses of billions of dollars in gross product, and solving these problems is in the mutual interest of the US and Mexico. The time is now!