West Texas, New Mexico breathe ‘sigh of relief’ over USMCA taking effect
For West Texas, New Mexico and Ciudad Juarez, binational trade is valued in the tens of billions of dollars each year. And the border is a major driver of job creation and investment.
That’s why people involved in the cross-border economy were delighted to see the new U.S.-Mexico-Canada Agreement (USMCA) finally take effect July 1, asserting that the absence of such a trade pact would have severely hurt the region.
The implementation of the USMCA brings to an end the often contentious, drawn-out redrafting of the agreement’s predecessor, the North American Free Trade Agreement, or NAFTA, which lays the ground rules for tariff-free imports and exports among the United States, Mexico and Canada.
‘A sigh of relief’
President Donald Trump’s rhetoric over renegotiating the massive trade deal was harmful to border trade in southern New Mexico, said Jerry Pacheco, executive director of the International Business Accelerator in Santa Teresa, New Mexico. The contentious nature of negotiations created uncertainty about whether the United States would even participate in free trade with its neighbors.
“The biggest net effect is just a sigh of relief,” he said, regarding the agreement’s implementation. “Because the way we went about this — beating up on Canada, antagonizing Mexico, threatening to cancel this thing, meant a lot of investment was postponed. A lot of job creation was postponed because of the acrimonious nature of the negotiations.”
Numerous companies have built entire operations — at significant cost — around the free trade structure, Pacheco said. And many jobs hinge upon the agreement’s existence.
“There was a lot of worry, especially with the businesses here, because some of them have invested tens of billions of dollars. And some have 200-plus employees,” he said. “And they’re here because of NAFTA. The threat by the White House to even cancel it if the Democrats wouldn’t play on the new agreement just sent a chill through everybody here.”
Pacheco said he’s aware of at least three companies that bypassed locating in Santa Teresa — New Mexico’s main international industrial area — over concerns about the outcome of the trade deal’s renegotiation. At least one company considered constructing a new building, investing significantly in southern New Mexico. Instead, he stated, it moved on to El Paso to a rented space that would be easier to drop if the free trade deal fell through.
Miriam B. Kotkowski, president of Omega Trucking in Santa Teresa, said the company is optimistic about the new agreement. Santa Teresa’s companies are on track to benefit from the expected growth in trade resulting from the USMCA.
“It gives strength to Mexico as the number one partner to the U.S.,” she said in an email. “Foreign investment will try to nearshore toward the border with the U.S., where we will see an advantage in our border in the Santa Teresa region, in particular, because we have plenty of room to grow with the state of Chihuahua. We have the Union Pacific (UP) rail intermodal terminal, a growing airport and an efficient port of entry. We are geographically positioned in a great spot.”
‘A day for celebration’
Negotiations in the three-nation trade deal kicked off in 2017. Mexico first ratified the USMCA in mid-2019. Trump signed the new agreement in January of this year, and Canadian officials adopted it in March. Some provisions are aimed at reshoring manufacturing jobs to North America from other parts of the world, raising wages for Mexican workers, opening up U.S. access to Canada’s dairy market and adding parameters for digital trade, among others.
Jon Barela is CEO of the El Paso-based Borderplex Alliance, which advocates economic development in the West Texas, southern New Mexico and Ciudad Juarez region. He said the July 1 start date for the USMCA was a “day for celebration, no doubt,” although some details remain to be worked out regarding its implementation. The major terms, he said, have already led to heightened interest from companies in the area, despite separate challenges posed by the coronavirus and the related economic downturn.
“Passage of the USMCA will accelerate job growth in our region — across all sectors — and continue the momentum that had been created prior to the Covid crisis,” he said. “I believe, thanks to the passage of the USMCA, our region will lead in job growth and economic recovery for our country and in Mexico.”
The value of international trade across the Borderplex area each year is massive. Trade through El Paso’s ports in 2018 totaled nearly $82 billion — roughly quadruple the level in 1995, which was soon after the start of NAFTA.
Even though Santa Teresa may have been negatively impacted by the arduous renegotiating of NAFTA, its lone port of entry still saw booming international trade last year. The border crossing — built only a couple of years before NAFTA launched — has seen trade grow from less than 1 billion in 1995 to $30.5 billion in 2019.
Barela, who advocated in Washington, D.C., for passage of a revamped free trade pact, said it would have been devastating economically to the El Paso border region — the fifth largest manufacturing hub in North America — if the three countries failed to reach a new agreement. But its implementation will boost job growth and investment.
“There are still some questions about how the enforcement mechanisms will operate, both in environmental and labor and others,” he said. “But, at this point, I’m very optimistic and very encouraged by what I’ve seen even thus far.”
New Mexico congressional candidates weigh in
Republican Yvette Herrell, a nominee for the 2nd congressional district seat covering southern New Mexico, expressed wholehearted support for the USMCA, saying New Mexico’s economy “depends on trade with Mexico and Canada.” The USMCA will continue to increase already significant exports to Mexico, border trade jobs numbering in the tens of thousands, and economic activity sparked by the state’s ports of entry, she said in a statement.
"The USMCA opens up new markets for New Mexico products and will streamline the export process for our small businesses with new customs and trade rules that reduce red tape and make it easier to engage in international trade,” she said. “Small businesses account for over 40% of New Mexico’s exports, and the USMCA will help them push that even higher. Our dairy producers will also gain more customers in the Canadian market through reforms to the Canadian system that currently inhibits access to their consumers.”
Herrell, who is facing incumbent Democratic Rep. Xochitl Torres Small in the November election, also praised the USMCA’s automotive manufacturing provisions and said she sees no downsides to the new pact.
“The agreement also encourages companies to produce more goods in America by raising wage and benefit standards in Mexico, reducing the draw of cheap and exploitative labor south of the border,” she said.
Torres Small’s campaign did not respond to requests for comment. However, she voted in December 2019 for the USMCA’s passage. She said in a news release that the pact will continue “to grow our state’s trade economy while securing real, enforceable labor provisions.”
“This version of USMCA is a big win for New Mexico and America’s workers,” according to the news release. “New Mexico’s workers, agricultural producers and businesses can finally breathe easier knowing that Congress has acted on their calls to restore stability to our state’s trade economy.”
Automotive provisions
Pacheco noted that one provision of the USMCA may be tough for some auto companies to achieve. That provision tightens the requirement for components and labor to be sourced from within North America in order to benefit from tariff-free trade. Under NAFTA, at least 62.5% of content had to originate from within the continent; under USMCA, 75% must do so.
“We do have a big automotive manufacturing component in Santa Teresa,” he said. “The new changes of the content requirements in the automotive industry — from 62.5% to 75% — will affect our companies. Everybody I’ve ever talked to doesn’t know how they’re going to get to the 75% because there’s so much production sharing going on that for some companies, it’s almost impossible.”
Still, Pacheco said, companies, if they are not able to reach the higher percentage of North American-sourced content, likely will just pay the tariffs to continue their production and supply lines. And that means added costs to consumers buying vehicles in the future.
Barela said the USMCA’s tougher automobile source requirement will spur the “reshoring of hundreds of thousands of jobs from China, just from that sector alone, I believe.” And the El Paso area, due to its prime location midway along the 2,000-mile border with Mexico and due to its skilled labor force, is positioned to benefit.
“But it’s not only in that sector that we will see the reshoring of jobs. It will be in the personal protective equipment and medical device areas,” he said. “We’re seeing evidence of reshoring in the telecommunications and consumer electronics sector and, of course, the automotive sector.”
Mexico is ‘not a foe’
Pacheco said the USMCA creates a “road map for companies to feel comfortable investing and creating jobs.”
An oversight in the trade deal, Barela said, was a missed opportunity to expand visa programs for workers, allowing more people to easily work across borders. But, overall, the USMCA sets the stage for the region’s continued economic growth.
“As I’ve said before, many, many times, Mexico is indeed an economic and strategic ally of the United States,” he said. “It’s not a foe.”