Business & Economics

A line of semi-trucks on the highway driving towards the border from the U.S. to Mexico.

As USMCA ratification is completed, and NAFTA is replaced, UArizona researchers provide insight into what this means for US-Mexico relations.

April 29, 2020

At the Mariposa Land Port of Entry in Nogales, Arizona, under steel canopies that provide relief from the harsh desert landscape, a poem etched on a wall, in both English and Spanish, is a message for border crossers. The poem, Border Lines, is written by Nogales, Arizona native and Arizona Poet Laureate Alberto Álvaro Ríos. It ends with the lines, Let us turn the map until we see clearly: / The border is what joins us, / Not what separates us.

Border economies along the U.S.-Mexico border—like Nogales, Arizona and Nogales, Sonora, straddling the Mariposa Land Port of Entry—have become economically enmeshed over the last 25 years because of the North American Free Trade Agreement (NAFTA) and tariff-free trade between the US and Mexico. Since NAFTA went into effect in 1994, U.S. trade with Mexico and, and the third member of NAFTA–Canada–has quadrupled, and earlier this year, Mexico surpassed China as the U.S.’s largest trade partner.

A renegotiation of NAFTA began in 2017 when President Donald Trump announced his intentions to replace the current trade agreement. The United States-Mexico-Canada Agreement, or USMCA, is a trilateral trade agreement that would replace NAFTA. USMCA was signed on November 30, 2018, but it remains open to be ratified by each country’s legislature.

One of the most significant changes between NAFTA and USMCA is new labor provisions, and there are questions surrounding whether those provisions are enforceable. Jeff Kucik, associate professor in the School of Government and Public Policy at the University of Arizona, says that “Enforcement is notoriously difficult.” While USMCA retains NAFTA’s core dispute procedures, those are rarely used for labor issues, he adds.

One of the major labor changes is allowing Mexican workers to vote on union and labor contracts through secret ballots. But it is unclear if this goes far enough for Democratic members of Congress, which may be a roadblock when Congress reconvenes after their six-week recess and begins to debate and ratify USMCA. Kucik says that “labor rights have been a sticking point for Democrats for decades.” Democrats have opposed past trade deals like Dominican Republic-Central America Free Trade Agreement, arguing laborers would be worse off.

A Ripple Effect

Failure to ratify USMCA could lead to market instability. “We’re already seeing how the U.S.-China trade war is generating fears on Wall Street and around global capital markets” says Kucik. Aggravating the situation, Trump’s “aggressive stance on trade is already affecting prices. Last year’s steel and aluminum tariffs were partly responsible for a 30% increase in U.S. steel prices in 2018. That hurts major manufacturers like Caterpillar, who have already suffered as a result of the tariffs. It also hurts smaller enterprises like craft brewers.”

Kucik says that USMCA is unlikely to impact U.S.-Mexico relations in a dramatic way because the trilateral negotiations between U.S.-Mexico-Canada ultimately resulted in “very modest changes.” In fact, one benefit of USMCA ratification is that it may bring needed stability: “During negotiations, there was a lot of feeling that any deal would be better than no deal. Greater economic damage would’ve been done if Trump threw NAFTA away.”

An additional benefit of USMCA ratification is that it may curtail job and revenue loss. “Failing to ratify USMCA could open the door for more trade protection and larger price hikes. That’s bad news for consumers and workers across the country, not just in Arizona” Kucik says.

The North American Research Partnership and Crossborder Group released a policy review in March on USMCA and the impact the changes would have on Arizona. According to the U.S. Census Bureau, Arizona land port of entries like Mariposa processed an average of $28 billion in trade with Mexico between 2015-2017. The review found that returning to a time before tariff-free trade could put “tens of thousands of Arizona jobs at risk.”

Similarly, the U.S. Chamber of Commerce ranked Arizona number nine on a list of “states that would suffer most if the United States withdraws from NAFTA”. Failure to ratify would also undermine infrastructure investments like the $244 million spent on the expansion of the Mariposa Land Port of Entry.

And Arizona Governor Doug Ducey supports ratifying USMCA, writing in a letter to Arizona’s Congressional members, “I’m proud to say today Arizona enjoys its strongest partnership with Mexico as at any time in our state’s history” He says that USMCA will take that partnership to “the next level.”

But Arizona is not the only one set to benefit from the approval of USMCA. In February, the U.S. Chamber of Commerce, along with 200 companies and associations from different economic sectors, drafted an open letter supporting the passing of USMCA. “Approval of USMCA will ensure U.S. manufacturers, farmers, and service providers can continue to access the Canadian and Mexican markets. The new pact guarantees that virtually all U.S. exports will enter these markets tariff-free.”

Tucson skyline cityscape and Santa Catalina Mountains at sunset.

International partnerships help position the Arizona-Sonora region as a tech hub.

April 28, 2020

California has Silicon Valley, New York has Silicon Alley and Tucson is gaining a reputation as Optics Alley thanks to the number of high-tech companies developing products such as cameras, sensors and lasers in the Arizona-Sonora region.

It’s not just optics companies thriving in the region. A recent report found that technology contributes $25.8 billion to the Arizona economy and wages in the technology industry are 89 percent higher than the median national average, which is no surprise to Carol Stewart, associate vice president of Tech Parks Arizona.

“The Tech Park is the link between three academic institutions: University of Arizona, National Autonomous University of Mexico (UNAM) and Ben-Gurion University of the Negev in Israel, to create this technology traffic between the countries and provide new market access for these projects once they go beyond the commercialization phase,” Stewart explains.

The Tech Park, which houses 50 companies that employ almost 6,000 people, is a significant economic driver for the region, generating an economic impact of $2 billion statewide. Several high-tech tenants are focused on disrupting the optics industry, which puts the Tech Park at the heart of the growing Optics Valley in Tucson.

While the Covid-19 pandemic has impacted a spectrum of industries, tech included, companies from both the Arizona-Sonora region and abroad are still looking for support to foster tech innovation in the region.

Companies from both the Arizona-Sonora region and abroad are looking for support to foster tech innovation in the region.

 “Southern Arizona shares both opportunities and challenges with other regions in the world and we have best practices we can share, but we can also learn from best practices in other regions, too,” says Justin Dutram, senior director of UArizona’s Mexico Initiatives, a university-wide collective of partnerships and collaboration with institutions in Mexico. “Research and the creation of new knowledge doesn’t happen in silos; most research is connected through global networks of researchers and research centers.”

Taking Initiative

Rather than wait for companies to reach out for resources and support through Tech Parks, Center for Innovation, Campus Research Corporation and Tech Launch Arizona, UArizona took the lead, launching a global partnership with other research institutions to develop commercial solutions to complex problems.

Research teams at the University of Arizona, UNAM and Ben-Gurion University of the Negev in Israel are all working on similar technologies in sectors ranging from digital healthcare and robotics to smart vehicles. The similarities in the climates in all three countries informs their research efforts, Dutram says.

“If we look at our natural environment, all three regions are dealing with water issues, sustainable agriculture and renewable energy, and the need to develop technologies around them is very important,” he adds. “Our original thought was, ‘How can we complement each other and create some new synergies that make us all stronger and create new markets for companies in each of our regions?’”

Representatives from all three universities recognized that robust opportunities for collaboration existed. After extensive conversations to gauge interest and discuss goals, the tri-national partnership kicked off with a visit to Israel in 2017 and trips Mexico and Arizona the following year.

The researchers wanted to better understand the innovation ecosystems in each nation, look at the existing research and identify projects in the tech sector that were most suitable for commercialization. Conversations about which projects to pursue and how to fund them are ongoing.

A Foundation for Innovation

Doug Hockstad, assistant vice president of Tech Launch Arizona (TLA), an office of integrated teams overseeing the commercialization of innovations to ensure technologies find meaningful applications, explains that research, both in the United States and abroad, provides significant value as a foundation for innovation.

“That is our goal,” he says. “To take the reach and innovative discoveries and find a way for them to have an impact on the region, the state and the world.”

“Over the last five years, we’ve had double digit compound annual growth in all of our major technology commercialization metrics, including invention disclosures, patent filings and issues, and the number of startups we’ve launched,” Hockstad adds. “It’s all about trying to create startups that have a strong potential for success and [with these partnerships] our goal is to focus the attention of the United States and the world on Southern Arizona as a leader in commercializing technology.”

Pursuing Global Growth

During a trip to Israel, a team from Tech Parks Arizona, which includes a business incubator, center for innovation and research park, met with representatives from 34 companies and connected with Israel-based business accelerators and venture capitalists to promote Global Advantage, their business development program to attract fast-growing tech companies to Arizona.

The visit generated a lot of buzz and several startups expressed interest in expanding to the United States. Stewart believes international companies want to establish a presence in the Arizona-Sonora region to access broader markets.

In smaller countries like Mexico and Israel, she explains, the markets are too small for companies or technologies to scale; expanding into U.S. markets provides essential access the explosive domestic market potential. Tech Parks Arizona ensures new market access for projects and partnering with UNAM and Ben-Gurion University could have a significant impact on the local startup ecosystem.

“As these inventions start to [seek commercial success], the inventors are going to start looking at their own markets and then thinking about international expansion; we provide that soft landing, that place that helps companies move past invention and into existence,” she says. “The University of Arizona is perfectly poised to work globally and be very impactful to Southern Arizona, Mexico and Israel with this project.”

A street full of storefronts and pedestrians in downtown Nogales, Mexico.

While President Trump remains steadfast in his plan to build a wall along the border, his Mexican counterpart is rolling out economic initiatives to help reduce the need for emigration in the first place.

April 29, 2020

In the face of President Donald Trump’s plan to build a border wall, Mexican President Andrés Manuel López Obrador (AMLO) is approaching the issue of Mexican migration to the U.S. in another way.

On January 1, 2019, the AMLO administration enacted the “Northern Border Free Zone” or Zona Libre de la Frontera Norte, a 15.5 mile (25 kilometer) zone along the U.S.-Mexico border from the Pacific Coast to the Gulf of Mexico. Within the zona libre, sales taxes were cut in half from 16% to 8%, income taxes were reduced from 30% to 20%, and the minimum wage doubled to 176 pesos (~$9) a day.

AMLO hopes that implementing these changes in this 15.5-mile-wide zone will invigorate the Mexican economy and inspire Mexican workers to stay in Mexico. He is optimistic that the zona libre will “promot[e] investment, production and technological development, and the creation of jobs.” He calls it a “last curtain to retain workers in our territory.”

Daniel Martínez, assistant professor of sociology at the University of Arizona and affiliate of the Center for Latin American Studies, the Department of Mexican American Studies, and the School of Geography and Development, says that the changes within the zona libre may encourage direct foreign investment from the U.S., as well as cultivate binational economic hubs, but it is not clear if these new economic measures are going to practically address migration to the U.S.

“It’s possible” that the zona libre will curb migration, Martínez says, “However, international [unauthorized] migration is complex and is the consequence of several interrelated macro-, meso-, and micro-level factors, including ‘pull’ factors in the United States and ‘push’ factors in Mexico.”

Shifts in Migration

Those push and pull factors can be seen in reverberations from the North American Free Trade Agreement (NAFTA). Enacted on January 1, 1994, the trilateral tariff-free trade agreement between the United States, Canada, and Mexico set into motion devastating problems for Mexican farmers.

“Both campesinos and indigenous folks in the southern part of [Mexico] were displaced by NAFTA,” says Martínez, noting that the two groups often overlap.

This displacement created a pronounced northern migratory pattern from southern Mexico that did not exist prior. “Before this, most migration occurred from west-central Mexico to the United States.” But subsistence farmers in southern Mexico were forced “into urban areas and maquilas along the northern border, and into the U.S. in search of work.”

An attempt to energize the economy at the U.S.-Mexico border may not be the most effective approach to address the current migration crisis, especially since northern Mexican states like Sonora are already comparatively better off than states in southern and southeastern Mexico like Oaxaca from which the campesinos migrated.

Further still, unauthorized migration from Mexico by Mexicans is at near 40-year lows, said Martínez, and this has slowed even more in 2020 due to the coronavirus pandemic. The migration patterns to the U.S. have changed from the 1990s or 2000s when Mexican campesinos were pushed northward.

Today, migration consists mostly of Central American asylum seekers from the Northern Triangle—Guatemala, Honduras and El Salvador—who are “fleeing abject poverty, political instability, and perhaps most important, urban violence at the hands of gangs and corrupt officials in their home countries.”

A Public Health Crisis at the Border

Previously, President Trump threatened Mexico with tariffs, putting pressure on the AMLO administration to take concrete steps to address the migration crisis at the Mexico-Guatemala border. As a response to Trump’s threats, Mexico has added more security at its southern border, apprehending and detaining Central Americans heading north to the U.S. to seek asylum.

Martínez says that both the U.S. and Mexico’s attention should be focused on the factors driving this migration crisis from the Northern Triangle in the first place, factors for which the U.S. shares responsibility. “The U.S. government, since the early-1900s, has played an active role in destabilizing these counties, whether it be through banana republics, U.S. support for right-wing regimes, U.S. involvement in the Central American civil wars in the 1980s, the exportation of gang culture through our deportation policies, and most recently, the 2009 coup in Honduras.”

These factors have led to the destabilization of the Northern Triangle, pushing many Central Americans north through Mexico to make the dangerous trek to the U.S.-Mexico border—a journey that has become even more dangerous amid the pandemic, as social distancing and quarantine in refugee situations is nearly impossible.

Due to COVID-19, Migrant Protection Protocol hearings have been suspended until at least June, which has caused a further backlog in court proceedings. Many of those waiting along Mexico’s northern border with the U.S. not only face delays, but also live in cramped and unsanitary conditions, potentially exposing them to a greater danger of COVID-19.

Seeking asylum is a legal right set forth by international and U.S. immigration law. Yet, increased militarization of the border and U.S. programs like Operation Streamline and Prevention Through Deterrence have led to an increasing amount of incarcerations, deportations, disappearances, and deaths. The U.S. and Mexico have at its shared border a public health crisis, Martínez says.

“Let's keep in mind that migration from Mexico is near historic lows,” he says. “Rather, the focus should be on the Northern Triangle in Central America.”

A woman in a mask and a hard hat works on a tablet.

When Covid-19 hit, the Trump administration pressured Mexico to keep factories that supply the United States operating during the coronavirus pandemic, even as outbreaks swept the companies, highlighting the nations' unique relationship.

June 19, 2020

Ever since the North American Free Trade Agreement (NAFTA) was signed on Jan. 1, 1994, manufacturing in the United States and Mexico have been highly integrated, particularly in the transportation and electronics sectors.

Each country’s economy depends heavily on the trades that are made as a result of NAFTA as well. The issue, however, is that the relationship between the U.S. and Mexico has never been equal — even despite the fact that the two countries make up the busiest cross-border supply chain in the world.

The imbalanced relationship is a result of “primarily unequal production (labor) costs between the U.S. and Mexico,” says Vera Pavlakovich-Kochi, senior regional scientist in the Eller College’s Economic and Business Research Center and adjunct associate professor in the Department of Geography and Regional Development at the University of Arizona. In other words, it’s far less expensive for American-owned companies to outsource production and labor to Mexico, then import the goods across the border.

“As far as ‘becoming more equal’ — this should be the final objective, but the fact is that the present relationships developed because the two sides have not been equal,” Pavlakovich-Kochi says.

The Impact of COVID-19

Then the global coronavirus pandemic hit and caused the relationship between the two countries to become even more frayed than before. This is somewhat of a result of the fact that the Trump administration has pressured Mexico to keep factories that supply the U.S. operating during the pandemic, even as outbreaks sweep the manufacturing companies.

But Mexican officials fought back and forced many of the factories to shut down in an attempt to curb the spread of COVID-19. The shutdowns caused a massive disturbance in the manufacturing supply chain between the U.S. and Mexico — a disturbance that very well could be felt for many years to come, even after the pandemic subsides.

“During the last two years, I analyzed specifically Arizona's relationship with Mexico and, based on trade data, attempted to estimate portions of Arizona's manufacturing that were dependent on cross-border trade in manufacturing products,” Pavlakovich-Kochi says. The data she analyzed from April 2020 (which, at the time of this writing, was the most recent data available) on the Nogales District — which is made up of six border ports of entry between Arizona and Mexico — was staggering.

The pandemic has caused an unprecedented decline in overall trade through the Nogales District. While it’s hard to quantify just how much of an economic impact the pandemic has had, overall exports to Mexico from the U.S. fell by 45.28% in April 2020 — or $526.3 million — compared to April 2019, while overall imports to the U.S. from Mexico were down by 24.85%, or $497.9 million. Those numbers include cross-border trade of all goods, including produce, livestock, plastics and rubber products, and others.

Manufacturing trade, however, has suffered the most from the pandemic, with three sectors — Computer and Electronic Products; Electrical Equipment, Appliances and Components; and Transportation Equipment — being hit the hardest.

Cross-Border Trade by the Numbers

  • When looking at manufacturing trade in the Computer and Electronic Products sector in April 2020, exports fell by 51.01% — or $79.2 million — compared to April 2019. Imports, on the other hand, declined by 37.86%, or $70.1 million.
  • For Electrical Equipment, Appliances and Components, exports were down in April 2020 by 60.16% — or $95.9 million — compared to April 2019. Imports fell by 56.63%, or $97.5 million.
  • The Transportation Equipment sector sustained the biggest hit. Exports decreased in April 2020 by 87.75% — or $179.2 million — compared to April 2019. Imports dropped by 7.02% — or $35.3 million — compared to April 2019. The lower overall drop in transportation imports can be explained by the fact that many American-owned transportation companies — such as Boeing, for example — outsource production to Mexico, and any transportation-related work was deemed as essential when the pandemic began (although as cases rose in Mexico, transportation-related manufacturing was no longer deemed essential, so production decreased toward the end of April).

A number of the discrepancies in next steps can be attributed to NAFTA — the agreement’s bylaws allow each member country to decide its own course of action “in times of war or other emergency in international relations,” i.e., during a pandemic. In the beginning, persistent pressure from the Trump administration was enough to get many Mexican factories to keep operating. But as the Mexican factory workers became ill and started spreading COVID-19 to one another, Mexican officials stepped in and forced many factories to close.

As for what the future holds, not even the experts are entirely sure. “I do not believe that the U.S. administration would impose more drastic measures to substantially reduce established supply chain,” Pavlakovich-Kochi says. “Although, as we witness daily, everything is possible.”

Tomatoes on the vine

A recent study from UA researchers found that tomatoes from Mexico contributed $4.8 billion in sales to the U.S. economy in 2016. Discover how U.S. food imports from Mexico support economic activity in the U.S. — and how COVID-19 is taking a toll.

Feb. 1, 2021

The earliest documented produce imports from Mexico into the United States took place in 1895 when tomatoes from Mexico entered Nogales, Arizona. Oranges followed shortly after, birthing an industry that has continued to grow for more than a century.

Today, Mexico is the largest supplier of agricultural products to the United States, with imports of agricultural products totaling $26 billion in 2018. Fresh vegetables and fresh fruits are leading categories, with imports totaling $5.9 billion and $5.8 billion, respectively, in 2018.

According to Lance Jungmeyer, president of Nogales, Arizona-based Fresh Produce Association of the Americas (FPAA), imported produce from Mexico accounts for only a percentage of the produce grown and sold in the United States. Without produce imports from Mexico, though, Americans wouldn’t have consistent access to fruits and vegetables like leafy greens, berries and tomatoes that can’t be grown in U.S. winter climates. That means volatile produce costs for consumers and decreased access to nutritious food throughout the year.

But importing produce from Mexico is more than a matter of convenience, one study found; it’s a source of tens of thousands of jobs and billions of dollars of economic impact to the United States each year.

The Economic Ripple Effect

“The importation of Mexican produce is a considerable contributor to the economy in that it employs trucking companies, food wholesale, food service systems, and supplies the grocery and food service establishments in the United States,” says Dan Scheitrum, Ph.D., an assistant professor in the Department of Agriculture and Resource Economics at the University of Arizona.

The recent study by the University of Arizona Cooperative Extension and the Department of Agricultural and Resource Economics found U.S. and Canadian imports of fresh tomatoes from Mexico contributed an estimated $4.8 billion in total economic activity to the U.S. economy and supported nearly 33,000 full- and part-time jobs in 2016. This impact is the result of forward linkages in the supply chain.

Forward linkages occur when industries provide their services to deliver goods to end users or consumers. The study, commissioned by the FPAA, found forward linkages after tomatoes cross into the United States totaled an estimated $2 billion in direct wholesale, retail, foodservice and transportation activity in 2016.

Demand for those goods and services also indirectly support demand for additional inputs and labor, stimulating additional rounds of economic activity referred to as multiplier effects. Accounting for multiplier effects, the total contribution of imported Mexican tomatoes to the U.S. economy in 2016 was an estimated $4.8 billion in sales.

Backward linkages, in addition to forward linkages, contribute to the economy when foreign producers purchase agricultural inputs from U.S. suppliers.

“A box of tomatoes that comes to the United States might have a seed that was produced by one of the major seed companies in the United States and sold by an Arizona-based seed distributor to the farm in Mexico,” Jungmeyer says. “It also probably had some agricultural inputs on the farm, whether those be chemicals or the drip tape. Then it’s put in a box that’s oftentimes printed and pre-formed in Arizona, but made using paper pulp that comes from Georgia.”

The Impact of COVID-19 on Agribusiness

Fast-forward to 2020, and the agribusiness supply chain is facing unprecedented challenges brought on by the coronavirus pandemic.

A leading challenge of COVID-19, according to Dr. Scheitrum, is the disruption in where food is being consumed.

“Now that consumption is not happening at restaurants, at hotels and at fast food services, it’s generally taking place in the home where food is being procured at grocery stores or take away, and those are really the only options,” he says.

That means producers that are well-suited to distribute food to restaurants and the food service industry are struggling to find a market for their products. In some cases, these producers are leaving their produce in the fields because there’s not an appropriate destination for it. In other cases, the lack of demand has driven prices so low that producers are finding it’s not worth the cost to pay someone to pick the fruit and then get it get it to market.

“Then it’s just left in the field to rot or get tilled over,” Dr. Scheitrum says.

Sergio Puig, professor of law at the University of Arizona and director of the international trade and business law program, pointed to another critical challenge: keeping the people who work in the fields safe. “They have to be working in order for us to have food.”

Likewise, producers are tasked with keeping supply free from contamination and reducing the likelihood of the virus transmitting to the food. That means making provisions for personal protective equipment like gloves, masks and face shields, and also implementing additional sanitation procedures.

According to Jungmeyer, the produce industry does have an advantage amid the coronavirus pandemic: It’s one of the quickest industries to adapt to new market changes because its market is always changing. “The produce industry goes up and down very quickly because it’s a perishable product,” he says. “The companies that operate in this area are used to having to reinvent themselves a lot.”