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The Mexican Border and U.S. Trade: What Would Be the Impact of a Border Closure?

By and ·April 13, 2019
University of California, Davis and University of Minnesota

(Click here for state by state sales to Mexico.)

The Issue:

Recently, the Trump Administration proposed closing the U.S. border with Mexico. The United States has strong economic ties with Mexico and such an action could have ripple effects across the country. Concerns about the possibility of a closure following the administration's announcements, combined with staffing issues, are resulting in spikes in wait times for trucks hauling goods across the border. An actual border closure could slow or halt trade flows between the two countries, affecting more than one million U.S. jobs and we estimate could cost Americans as much as $130 billion a year, or nearly 350 million dollars per day.

U.S. firms export goods and services to Mexico from every state. States with the most sales to Mexico include Texas, California, Michigan, and Illinois.

The Facts:

  • Enormous quantities of goods cross the U.S. – Mexico border each year. Taking into account both imports and exports, the United States trades close to $700 billion in goods and services with Mexico. A large share of this economic activity physically crosses the border on trucks and trains. The Bureau of Transportation Statistics estimates that more than $400 billion in freight crossed the U.S.-Mexico border by truck and nearly $80 billion by rail in 2018. A border closing would especially disrupt these two modes of surface transport, which account for about four fifths of measured freight value with water vessels, air vessels, and pipelines accounting for the balance. Shutting the border to surface transport would disrupt an average of $1.3 billion in goods flow each day. The top commodity categories moved by truck are computers and parts, electrical machinery, and motor vehicles and parts. Rail freight heavily involves mineral fuels and plastics. Supplies of affected goods could face significant hold-ups or price spikes in the event of a border closure.
  • Mexico is a major buyer of goods and services produced in the United States, especially U.S. agricultural products. U.S. companies export goods and services to Mexico from every state. The states with the most sales to Mexico are Arizona, California, Illinois, Indiana, Louisiana, Michigan, Ohio, and Texas, each exporting between close to $5 billion and $100 billion in 2017, and other states throughout the Southeast and Great Lakes regions exporting more than $2.7 billion each, according to the Department of Commerce. Mexico is one of the top three international markets for U.S. agricultural goods. U.S. exports to Mexico accounted for nearly one seventh of overall U.S. agricultural exports in 2017.  Mexico is a particularly large market for U.S. corn, soybeans, and meat. The U.S. Department of Agriculture reports that Mexico buys between one fifth and one quarter of U.S. exports of pork, dairy, and poultry products.
  • U.S. exports to Mexico support companies and jobs across the U.S. Approximately 60,000 U.S. companies export to Mexico. Roughly one third of these exports are from small and medium-sized enterprises. The U.S. Department of Commerce International Trade Administration estimates that U.S. exports to Mexico support a combined 1.2 million U.S. jobs in exporting companies and their suppliers. Closing the border could have a broader impact, affecting firms that are not themselves directly involved in selling their products to Mexico. If part of the market for an industry’s goods disappears, it could affect firms in the industry beyond just firms that sell to that particular destination by creating excess supply in the industry, depressing output prices. In total, we calculate based on data from the Bureau of Labor Statistics that there are more than half a million U.S. business establishments employing nearly 15 million workers in these industries spread across every state in the U.S.
  • It is not just exports to Mexico that matter. Complex, integrated international supply chains mean that interrupting border flows of goods would have an impact beyond U.S. firms whose market for final goods is Mexico. About 30 percent of the content of Mexico’s manufacturing exports to the United States is, in fact, imported from the United States itself through cross-border supply chains according to a study by Alonso de Gortari of Princeton University. Cutting off access to these trading relationships risks price hikes, supply hangups, and fewer available options, similar to the effects of a very high tariff. Using de Gortari’s estimate that a tariff war with Mexico could reduce the size of the U.S. economy by as much as 0.62 percent, we estimate that because of the heavy involvement of U.S. producers in these supply chains, a closure could lower U.S. GDP by as much as $130 billion per year compared to a world without a border closure.

What this Means:

A border closure would disrupt economic relationships for communities across the United States with companies and workers in industries involved in trade with Mexico, shrinking U.S. real GDP by as much as 0.62 percent, or $130 billion per year, according to our estimates. Such an interruption would have a noticeable effect on the firms directly involved in cross-border flows and all the service industries built around supporting these exchanges. In addition, the impact would be felt well beyond the border due to integrated supply chains and to the fact that Mexico is an important market for firms in all states in industries across the agricultural, manufacturing and service sectors. Reducing access to this market would directly affect 60,000 U.S. companies that export to Mexico and could indirectly affect as many as half a million. The states experiencing the heaviest impact likely would include Texas, California, Michigan, and Illinois.

Topics:

International Trade / Labor Markets / Mexico
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
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