Trade with Mexico

Signs of life

Something cheery from the border

Jun 24th 2010 | SAN ANTONIO

Let the good times roll

NEWS about the relationship between Mexico and the United States has been mostly dismal of late. Every day brings reports of new murders in Mexico and new flare-ups over border security. But in one respect, at least, things are looking up. According to the Bureau of Transportation Statistics, surface-transport trade between the two countries was $27.8 billion in March of this year—up nearly $8 billion from March 2009, and nearly as high as it has ever been.

Roberto Coronado, an economist with the Federal Reserve based in El Paso, says that much of the growth is due to increased industrial production in America, particularly of cars. In the face of recession many manufacturers chose to cut their output, and Mexico’s maquiladora industry, a large part of which is devoted to making car parts, faltered as a result. As confidence returned, the orders resumed. Without that surge, Mr Coronado notes, America’s GDP growth over the past several quarters would have been much smaller.

It is a welcome sign of life for both sides. True, the effects of the North American Free Trade Agreement (NAFTA) have been hard to assess. But in south Texas and San Antonio, one of the cities where NAFTA was signed, there is no doubt that it has helped growth. A 2009 study from the SABER Research Institute, based at St Mary’s University in San Antonio, found that trade flows in south Texas increased almost 160% between 1994 and 2007 as a result of NAFTA.

For Mexico the recovery is not just good for business. America’s downturn has hurt Mexico’s economy. It may also have made the place more dangerous. During the good years thousands of people from the interior of Mexico migrated to sprawling border cities like Juárez, looking for comparatively good jobs in the bustling factories. Officials on both sides of the border, including Hillary Clinton, America’s secretary of state, have been worrying that a surge in unemployment has made it easier for the drug cartels to find new helpers.

Tensions persist. One has to do with trucks. When NAFTA went into effect in 1995, the United States and Mexico agreed on a provision to allow lorries freely to cross the border. The present system, with cargo unloaded on one side of the border and reloaded on to different trucks on the other, is inefficient. But America quickly reneged. Unions opposed the provision as a threat to American labour, and environmentalists worried that Mexican trucks were not up to American standards.

In 2007 George Bush announced a pilot programme to allow up to 100 Mexican trucking companies to trundle through the United States, and vice versa. Last year Barack Obama said he would cancel the programme. A frustrated Mexico then announced tariffs on an idiosyncratic list of 89 American products: 20% on Christmas trees, 45% on grapes, and so on. These added up to more than $2 billion in imports.

Trucking remains contentious. Mr Obama has told the Mexican president, Felipe Calderón, that he will deal with it. But the administration wants to see more trade move to rail and sea and off the roads. And when the presidents meet they tend to be occupied with more pressing matters of border security stemming from Mexico’s drug war. Now they have at least one happier subject to talk about.