EL PASO, Texas (Border Report) – Some $14 billion worth of goods passed through the El Paso trade district in June, much of it coming from U.S.-run assembly plants in Mexico.
That’s a 40 percent increase over the $10 billion total last September that attests to the strength of the U.S. economy and continued relocation of production lines from Asia, according to the July 2024 Borderplex Business Barometer from the University of Texas at El Paso’s Border Region Modeling Project.
What makes this increase noteworthy is that trade volumes rose while Juarez, Mexico, just across the border from El Paso, lost thousands of manufacturing jobs during the same period.
Juarez plants known as maquiladoras bankrolled nearly 310,000 export-oriented manufacturing jobs in September, compared to just over 290,000 this past June.
“Always a cyclical industry, the recent evolution of Juarez’s (maquiladora) activities in somewhat puzzling,” says the report authored by UTEP economists Thomas M. Fullerton and Steven L. Fullerton. “Although the U.S. economy has continued to grow, (maquiladora) jobs in Juárez have declined on a year over year basis during the last 8 months…”
The authors say several factors are at work.
“While manufacturing nearshoring is occurring, it has been accompanied by a strong (Mexican) peso appreciation against the dollar. The 20 percent increase in the value of the peso since mid-2020 has raised the cost of doing business in Mexico. Ironically, nearshoring has helped strengthen the peso,” the researchers say.
The peso has started to lose value in recent weeks, but that doesn’t offset a mandatory rise in wages in Mexico. The government decreed a 20 percent minimum wage hike in January south of the border, which further erodes maquiladora profitability, according to the report.
Investors are leery of potential tax and regulatory changes in Mexico once President-elect Claudia Sheinbaum, a populist, takes office Oct. 1. Likewise, whoever wins the U.S. presidency in November could disagree with aspects of the U.S.-Mexico-Canada trade agreement.
“Although nearshoring has undeniably attracted substantial manufacturing investment to northern Mexico, policy uncertainty is probably causing it to fall short of what it could otherwise reach,” the report states.
Yet another factor is the increased automation taking place inside the Mexican plants, which are becoming more capital intensive, per the report.
One Juarez industry leader agrees that maquiladoras are cutting back jobs and is calling on the Mexican government to develop employment in other sectors to prevent an unemployment crisis.
“We depend (on maquiladora) jobs. Six out of every 10 formally employed workers in our city work inside a plant. That’s called having all your eggs in one basket,” said Thor Salayandia, board member of the Mexican Chamber of Industry. “Employment is falling, and we need to diversify our economy, create supply jobs, promote medical tourism. We can do so many things.”
Salayandia and other Mexican business leaders are lobbying their federal government to create a cabinet-level Border Affairs Ministry that can react quickly to changes in the U.S. and world economies.
“Political uncertainty has slowed investment. We see some new businesses in the past few months that announced they are coming to Juarez. But those that leave don’t (publicize) their shut down, nor make announcements when they have layoffs,” Salayandia said.
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