December 5, 2016

What do Trump’s trade proposals mean for New Mexico?

Gage Skidmore

Donald Trump at Arizona rally in March, 2016. Flickr/cc

Just months before Donald Trump’s surprise victory to the nation’s top office, Gov. Susana Martinez penned an op-ed about a bright spot in New Mexico’s otherwise weak economy.

That bright spot is also a geographical location—the border.

“We are quickly positioning our state as a gateway of international trade throughout the Americas,” Martinez wrote in June, “and we are embracing our newly found leadership role, which wouldn’t be possible without the cross-border relationships we’ve built.”

Related: Why Trump would almost certainly be violating the Constitution if he continues to own his businesses (by ProPublica)

Last year, for example, Las Cruces and Santa Fe, respectively, ranked as the two metropolitan areas in the nation with the highest economic growth in exports. In 2012 and 2014, New Mexico also led the nation in export growth.

Nearly half of these exports—45 percent—are shipped south of the border.

Which means all of this could be put in jeopardy, proponents of the border economy warn, if Trump follows through on his campaign promises to tax products from Mexico and scrap free trade agreements.

“It’s like taking a pistol and shooting ourselves in the foot,” Jerry Pacheco, president of the Border Industrial Association, said of the potential impact of Trump’s proposed trade policies on New Mexico.

Pacheco works in Santa Teresa, a small town in Southern New Mexico that’s home to an industrial park where roughly 60 companies that work in manufacturing and logistics have a presence. The Border Industrial Association, which Pacheco described as “kind of an industrial chamber of commerce,” has 115 members across the state.

New Mexico’s southbound and northbound trade combined is currently a $26 billion industry, up from $1 billion just seven years ago, according to Pacheco.

“What’s the biggest star of New Mexico right now? It’s the border,” Pacheco said. “The border is industrializing.”

Related: Most of NM delegation denounces Trump’s selection for chief strategist

Throughout his presidential campaign, Trump vowed to impose a 35 percent tariff on Mexican imports and renegotiate the decades-old North American Free Trade Agreement.

Doing so, Pacheco warned, would stop investment and potentially cost New Mexico jobs in the border region.

A U.S. Commerce Department report from 2015 estimated export-related employment in New Mexico at 16,500 people. These jobs broadly fall under three categories—manufacturing, logistics and customs jobs, according to Robert Queen, the director of the Department of Commerce’s New Mexico U.S. Export Assistance Center.

But whether Trump actually follows through with his tough-on-trade talk is, at this point, anyone’s guess. Since winning his upset election over Hillary Clinton last month, Trump largely cooled his rhetoric on trade until last weekend. On Sunday, Trump made a Facebook post promising to tax any company that “leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S.”

Trump’s actual proposed policies on trade so far, however, haven’t matched his tough rhetoric from the campaign. A deal his incoming administration made last week with the air conditioner manufacturer Carrier will give the company roughly $7 million in tax incentives in exchange for keeping roughly half of 2,000 workers in Indiana. Carrier still intends to send about 1,000 of those jobs to Mexico.

Michael O’Donnell, a research scientist at the University of New Mexico Bureau of Business and Economic Research, characterizes Trump’s policies as having “a high degree of uncertainty.”

IHS Economics, the national economic forecaster that BBER relies on, for example, didn’t include a “Trump factor” into its economic projections for industries across the country for next year, O’Donnell said.

Apart from Trump’s knack for constantly shifting stances on promised policy positions, he’ll also have to deal with a bipartisan Washington D.C. consensus that has largely endorsed a move toward free trade over the past two decades.

“It’s less a matter of economics and more a matter of the headwinds he has to face in Congress,” O’Donnell said. “It’s a Republican Congress, and generally with a Republican Congress you’d expect them to push a free trade agenda.”

One area where O’Donnell said will offer insight in how serious Trump is about trade reform is in his cabinet picks. International trade policies fall under the federal Department of Commerce.

Trump’s nominee for Commerce Secretary, the billionaire investor Wilbur Ross, promised to reporters last month that “there aren’t going to be trade wars.” But he’s also criticized free trade deals, equating them to “free lunch” and lamenting over how “we’ve been losing with these stupid agreements that we’ve made.”

Much of this argument amounts to faulting trade deals encouraging U.S. companies to ship manufacturing jobs overseas for cheaper labor since the last quarter of the 20th century.

In an interview last week with Yahoo Finance, Ross said the U.S. needs to reduce the $60 billion trade deficit with Mexico by either convincing Mexico to export fewer products to the U.S. or making Mexico buy more products from the U.S.

But proponents of a free trade friendly policy note that the industry works in ways that aren’t as linear as one country simply buying goods from another country.

Continental Automotive Systems, for example, makes automotive parts in Santa Teresa that are shipped to Juarez, Mexico to be added to automobiles that are then shipped back to the U.S. and sold as cars.

“I think most people realize today that products are not completely made within one plant or one facility,” Queen said in an interview. “Just because a product might be finished in the United Kingdom, Japan or Mexico doesn’t necessarily mean it’s bad for America, because it might have high American content. The key is to be a critical link in the global supply chain.”