BAT · border adjustment tax · international trade · manufacturing · Mexico · trade · Uncategorized

How Arizona Manufacturers Are Benefitting from Trade with Mexico, Big-Time

While it’s no secret that Mexico is Arizona’s largest foreign trade partner, current political rhetoric at the national level sends the message that trade with Mexico is disadvantageous and results in a loss of American jobs. Just yesterday in a meeting with CEOs of major American manufacturers, Trump referred to our trade relationship with Mexico as “unbelievably bad.” The real data, however, paint a very different picture for Arizona. The University of Arizona’s Economic and Business Research Center just released the latest Arizona-Mexico Trade Indicators. In 2016, Arizona had a net trade surplus of $870 million with Mexico. If we look only at trade in manufactured goods, the numbers become even more compelling. In 2016, Arizona imported $4.66 billion of manufactured goods from Mexico and exported $5.97 billion of manufactured goods, resulting in a net trade surplus of $1.3 billion for the manufacturing sector. These data have been trending in a positive direction, thanks in part to Arizona Governor Doug Ducey’s focus on building strong economic ties with our neighbor to the south. The surplus for manufactured goods has increased from $850 million in 2014 to $1 billion in 2015 to $1.3 billion in 2016.

This is exciting news for Arizona’s businesses and workers. Our relationship with Mexico directly supports over 100,000 jobs in Arizona. Mexico accounted for about 40% of all Arizona exports to foreign markets in 2015, according to the U.S. Department of Commerce’s International Trade Administration. Many of these exports are high-value, manufactured goods such as electronics and machinery. These trade-related jobs pay around 18% more than other types of jobs.

All parts of the state benefit from trade with Mexico. This is demonstrated by Lucid Motors, which in December announced plans to open an electric car assembly plant in Casa Grande that will eventually employ 2,000 people. Lucid Motors cited strong supply chain capabilities with components manufacturers in Sonora as a major factor in their decision to locate in Pinal County.

A $1.3 billion surplus is a big deal. But it is at risk as the Trump Administration and others in Washington blame international trade for manufacturing job losses in the Midwest. These claims ring hollow in Arizona where we are clearly benefiting from robust trade with Mexico. So how do we prevent misguided protectionist policies from stymieing our growth?

  • First, change the narrative. Most mainstream media are missing the real story here. Media outlets on both the political Right and the Left have published countless stories bemoaning the demise of good paying manufacturing jobs. This has led to a faulty public perception that trade causes more harm than good, and a push for policy changes that would actually reduce economic output and cost American jobs. We need a PR strategy to tell the positive side of the story and provide specific examples of companies that have created new jobs by exporting to Mexico.
  • Build relationships between governmental and business leaders on both sides of the border. Fortunately, many of Arizona’s leaders get this. Governor Doug Ducey has made numerous trips to Mexico and has a productive working relationship with the Governor of Sonora, Claudia Pavlovich. Phoenix Mayor Stanton, Senators McCain and Flake, and many business leaders have established strong ties with their counterparts in Mexico. We should continue to build on these relationships at all levels of government.
  • Resist the border adjustment tax (BAT). Some lawmakers are suggesting that new revenue generated by the BAT would enable them to make much-need reductions to the corporate income tax. However, there are better ways to offset any short-term loss in revenue. The proposed tax on Mexican imports would have a chilling effect on Arizona’s trade relationship. It would invite retaliatory action and ultimately shrink the size of the market available to Arizona manufacturers.
  • Modernize NAFTA. The 23-year-old tri-lateral trade deal has done wonders for Arizona’s export industries. Any serious effort to renegotiate the treaty should focus on addressing new trade issues that have emerged since the widespread adoption of Internet-based and mobile technologies.
  • Invest in infrastructure to support commerce. Infrastructure investment was one of President Trump’s major campaign promises, and one of the few that enjoys bi-partisan support. Improvements to Arizona’s Key Commerce Corridors – Interstates 10, 8, 19, 40 and the forthcoming Interstate 11 – as well as upgrades to our border ports of entry could expedite the safe movement of commerce.

Arizona’s strategic location and historic ties with Mexico position us well for strong export-led growth in 2017 and beyond. Turning inwards towards protectionist policies that reduce market access and drive up costs throughout the supply chain would hurt Arizona’s manufacturing industry and have a negative impact on jobs. Upcoming issues of the Policy Blog for the New West will focus on specific policies to strengthen economic ties between our region and Mexico while simultaneously improving security.

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