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Speeches by Dallas Fed leadership

Understanding the evolving relationship between the United States and Mexico

Roberto A. Coronado
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Dallas Fed Senior Vice President Roberto Coronado delivered these remarks at the Western Hemispheric Trade Center Annual Conference at Texas A&M International University in Laredo.

Thank you for that kind introduction and for inviting me to speak today. The conversations about the border and our strategic relationship with Mexico are important, and I hope more people take part across our communities, throughout the state and nation. For the past 20 years, I have worked at the Dallas Fed on our mission of “Building a Stronger Economy Together.” We can’t do this alone, and that’s why this year’s conference is so important. Building a strong economy requires contributions from everyone. And that certainly includes our border communities like Laredo that play an important part in our state and national economy.

My career at the Dallas Fed has given me the opportunity to travel across Texas and visit with business and community leaders to listen to what they are experiencing in their daily lives. Through my own economic research and conversations with these leaders, some of whom are in the audience today, I have watched our economic relationship with Mexico evolve over the years. I have also experienced this relationship firsthand, growing up in Juarez and now working, living and raising my family in El Paso. This experience helped me understand and appreciate how closely the U.S. and Mexico are intertwined, and how special our relationship is. When I began my journey in economics, living on the border instilled a drive in me to understand this economic relationship between both nations. Understanding the dynamics and evolution of this relationship is important to me not just professionally, but personally as well.

The Dallas Fed also recognizes that by understanding Mexico and its economy, we can better understand our own economy; helping us to make more informed monetary policy decisions. The unique and dynamic relationship between the two nations has pushed us to go beyond simply studying the flow of capital, goods and people. It is also critical to understand the socioeconomic linkages between our two countries, and there is no better place to observe these connections than the border. As the relationship continues to evolve, our approach to understanding and analyzing it will also evolve.

Today, I will share some insights on how this relationship has grown over the past three decades, how we see it continue to evolve, and what we will be tracking on the horizon. (Slide 2—Disclaimer) Before I dive into my comments, I must start by saying the views I express are my own and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or Federal Reserve System. After this year’s conference, I hope you will have a deeper awareness of the distinctive economic relationship between the U.S. and Mexico and its importance to the economic growth of both countries.

Understanding the importance of Mexico to the U.S. and Texas

Let’s begin in Texas (Slide 3—Our evolving relationship). The unique relationship between the Lone Star State and Mexico is of particular interest to the Dallas Fed. As most of you know, the Dallas Fed is one of 12 regional Federal Reserve Banks in the U.S. We represent the Eleventh District, which is comprised of Texas, northern Louisiana and southern New Mexico. This U.S. Mexico border stretches 1,900 miles, and 74 percent of that territory is in our district. Our geographical coverage provides the Dallas Fed unique insights and perspectives on this strategic relationship.

Compared with national economies, Texas is the ninth largest in the world. Our state offers a business-friendly climate—with no personal income tax—and a highly skilled and diverse workforce, easy access to global markets, robust infrastructure and a reasonable regulatory environment. Regarding size of GDP, Texas ranks ahead of countries including Canada, South Korea, Russia and Australia.

As part of the 360 Listening Tour we organized to introduce President Lorie Logan to the district, we visited Laredo last July. We learned that almost half of U.S.-Mexico land-based trade goes through the Gateway City. Port of Laredo trade increased nearly 40 percent (inflation adjusted) over the last decade. Business leaders said the heavier traffic is evidence that more companies are moving operations or suppliers from overseas to Mexico and nearby countries, a trend known as nearshoring.

Border communities witness the impacts of the multifaceted economic relationship between the U.S. and Mexico. In trade, jobs and private investment, communities such as Laredo and Nuevo Laredo are tied to one another. Since the passage of NAFTA, trade of goods has grown from $206 billion in 1994 to $799 billion in 2023, adjusted for inflation. On any given day in Laredo, you can see that trade in real time, crossing back and forth on border bridges. About 42 percent of the billions of dollars in trade represents U.S. exports to Mexico, while the remaining 58 percent represents imports from Mexico to the U.S.

NAFTA was not without its challenges, but since its implementation we have seen increased bilateral trade and production sharing between the U.S. and Mexico. This has led to stronger economic integration, increased investment and more business cycle synchronization. Last year, for the first time in 20 years, Mexico became the leading source of goods imported to the U.S. (Slide 4Chart: Mexico emerges as the U.S. main trading partner at the start of 2023). Between 2022 and 2023, the value of goods imported to the U.S. from Mexico rose nearly 5 percent while the value of Chinese imports fell 20 percent. Our border communities in both Texas and New Mexico have been at the forefront of this shift in our economic relationship.

Before Mexico was the number one trading partner with the U.S., it was already the number one destination for Texas and New Mexico exports. In 2022, New Mexico exported $3.2 billion in goods to Mexico. In 2021, over 15,000 jobs in New Mexico were supported by exporting activity.

In 2022, trade between Texas and Mexico totaled $285.6 billion with the amount of goods exported from Texas totaling $144.3 billion. Mexico was also Texas’ number one import source country in 2021, over one million jobs were supported by Texas exports. Over three-quarters of the land trade between both countries crosses through Texas ports of entry. This level of trade volume has contributed to the Laredo Port of Entry becoming the busiest in the nation.

Evolving economic relationship between the U.S. and Mexico

In the long evolution of the economic relationship between the U.S. and Mexico, trade and foreign direct investment only tell part of the story. Border communities know the flow of dollars across the border is not limited to commercial trade and investments. Consumer spending by Mexican nationals at stores and restaurants across the border helps fuel our local economies. In addition, remittances from the U.S. to Mexico are another strong representation of this economic relationship. In 2022, remittances from the U.S. to Mexico reached a record $55.9 billion, providing a lifeline for millions of Mexican households. While this money is used mostly for necessities—clothing, food and healthcare—there is evidence households are also using the funds for productive activities that aid economic growth among local communities.

In our research, the Dallas Fed has found that remittances to Mexico are driven predominately by U.S. labor market conditions. The impact of what happens in one country is so often felt almost immediately by the other. As you can see in the chart, (Slide 5—Chart: Remittances reached record high levels in 2023) in March 2020, as the pandemic took hold in the U.S., we saw remittances spike and then fall. Then, as the U.S. labor market rebounded, we saw remittances rebound as well. Currently, as you all are aware, U.S. job growth remains strong. This has helped boost the capacity of Mexicans working abroad to send money back home, and remittances remain near record highs.

Remittances also play a role in Mexico’s economy, as the main net foreign-exchange generator. In 2022, remittances amounted to 4.5 percent of Mexico’s GDP compared to 2.5 percent a decade ago.

As the trade relationship between the U.S. and Mexico has evolved over the past 30 years, the composition of that trade has also changed. Prior to NAFTA, trade with Mexico was concentrated in specific industries such as agriculture and was driven by finished goods (also known as inter-industry trade). Since then, trade has not just grown, but also diversified. Opportunities in advanced manufacturing have benefited both sides of the border, and we have seen further economic integration. Today, trade between both nations is well diversified across sectors, and it’s comprised of mostly intermediate goods (also known as intra-industry trade). As the chart shows, (Slide 6—Chart: U.S. and Mexico business cycle synchronicity grows post-NAFTA) since NAFTA we have seen greater levels of business cycle synchronization between the U.S. and Mexico.

At the Dallas Fed, we have done extensive work trying to better understand the ways this economic integration impacts us on a national, state and local level. (Slide 7—Chart: U.S. and Mexico manufacturing employment synchronicity increases post NAFTA) The chart illustrates the synchronization we see in the business cycle we also see in manufacturing employment on both sides of the border. Here’s a recent example. At the onset of the COVID-19 pandemic, we observed both maquila employment and U.S. manufacturing employment fall. Looking at the data, we can clearly see an increase in this synchronization after the implementation of NAFTA and now under the USMCA.  

This synchronization is also evident at the local level. Research conducted at the Dallas Fed has shown when maquila production in Ciudad Juarez increases, we see an increase in employment in El Paso. We estimate a 10 percent increase in maquiladora output in Ciudad Juarez leads to a 2.8 percent increase in total employment in El Paso, with job growth concentrated in transportation, retail trade, business services, finance, insurance and real estate. So, our research suggests that cross-border trade and cross-border manufacturing in our region have been strong sources of job growth. The same is true all along the Texas border in cities such as Laredo. I would like to point out, this job growth has been predominately concentrated in the professional and business service sectors. This in turn has resulted in growth in wages and income levels, translating into overall improvements in standards of living in our community.

Not only has the breadth of our economic relationship with Mexico grown, but the relationship has also deepened. It is worth highlighting that the U.S. trade relationship with Mexico (and Canada for that matter) is very different from the one with China. As shown in this chart (Slide 8—Chart: U.S. content highest in imports from Mexico, Canada) every dollar’s worth of goods the U.S. imports from Mexico contains 40 cents of U.S. content. The number for Canada is 25 cents. For reference, there is only 4 cents of U.S. content for every dollar in goods we import from China. This indicates a strong partnership among North American countries and common manufacturing platforms.

It is fair to say: the U.S. and Mexico manufacture things together. Look at the automotive industry. A vehicle will likely cross the border seven to eight times throughout its production life cycle, allowing Mexico and the U.S. to make the most of their comparative advantages.

According to the research conducted by my Dallas Fed colleague and Senior Business Economist Jesus Cañas, the cross-border manufacturing partnership between the U.S. and Mexico has enabled key manufacturing sectors, such as automotive, computers and electrical equipment, to become more globally competitive.  

This economic integration has been growing and evolving over the last three decades and becomes especially important today with near-shoring opportunities.

I am sure many of you in the audience can remember the anxiety and concern of so many people along the border as China joined the World Trade Organization in 2001. China steadily gained market share of U.S. imports, particularly of manufactured products. Those anxieties and concerns have eased over the past several years with renewed interest in nearshoring.

Conversations about nearshoring often focus on supply chain disruptions and COVID-19. But this shift started before the onset of the pandemic. If you recall, prior to the pandemic, we observed several developing trends, including deteriorating relations between China and the U.S., increased tariffs on trade with China and rising input costs that spurred companies to look at nearshoring opportunities in North America.

In addition, economists and business analysts pointed to other reasons why North American manufacturing became more competitive and attractive. Rising wages in China and higher shipping costs, for example, contributed to eroding the cost advantage Chinese manufacturers had previously enjoyed. In the immediate wake of the pandemic, as supply chains tied to Chinese shipping and manufacturing operations halted, companies began to look closer to home. This has driven a manufacturing resurgence in nearshoring opportunities in both Mexico and the U.S.

At this point in time, we do not have much FDI data that show development of nearshoring. We would anticipate evidence of nearshoring to Mexico should show up in foreign direct investment data. For several reasons—potential lags in FDI data, perhaps changes in business climate or the pandemic holding up progress on nearshoringwe have not seen nearshoring reflected in the datayet. Data from 2023 show an uptick in manufacturing FDI in Mexico, as you can see in the current chart (Slide 9—Chart: In 2023, Manufacturing FDI in Mexico was Flat while Total Fell).

I often say, economics is not just a social science, there is an art to economics as well. So, while there is no conclusive, hard data available, we do have plenty of qualitative evidence to suggest this shift to nearshoring in Mexico is at hand. Like I mentioned before, I regularly meet with business owners and community leaders to hear about what they are seeing in the economy. While our phenomenal team of economists crunches the data and conducts the economic modeling, these conversations are where the art of economics comes into play. Our interactions with business and community leaders like yourselves provide us with on-the-ground, real time, anecdotal information on what is occurring in the economy, helping us identify trends before they hit the data.  

(Slide 10—What we are hearing from our contacts regarding Mexico) We have consistently heard from our contacts that nearshoring is on the rise. Contacts have shared that the “nearshoring trend is real,” and they are continuing to see a realignment of the global supply chains. In our region, real estate net absorption and commercial border crossings are at record levels, suggesting local growth in the manufacturing, trade and transportation industries. In addition to what we are hearing from people throughout the district and in Mexico, recent reports from private banks and real estate brokers indicate nearshoring is contributing to low industrial vacancy rates of around 5 percent nationally in Mexico and close to zero along the border.

Beyond what we are seeing on this side of the border, research conducted by the Dallas Fed provides insight on how the nearshoring expectations impact the Mexican economy.

Looking at private investment in Mexico, the chart (Slide 11—Chart: Mexico’s private investment keeps rising) indicates it has been on an upward trend since the end of the pandemic, returning to pre-pandemic levels in the third quarter of 2021. In the third quarter of 2023, private investment was 22.8 percent of Mexico’s GDP compared to 18.6 percent in the first quarter of 2021. According to multiple sources, some of this domestic investment is in preparation for nearshoring projects.

The increase in private investment is also likely due to investment catching up after projects were suspended due to the pandemic. Companies are also likely replacing and upgrading their equipment, taking advantage of the strong peso, which makes imports of machinery and equipment less expensive.

Outlook on binational relationship

(Slide 12—Summary)Over the past 30 years, our economic relationship with Mexico has grown and deepened. This evolution will continue as nearshoring activities are realized, technology continues to develop and consumer demand changes. The discussion about nearshoring should go deeper to contemplate how both nations can best leverage our unique economic relationship.

During the COVID-19 pandemic, we saw how supply chain issues and delays contributed to changes in the global economy and pushed nearshoring efforts forward. As manufacturing ramps up in Mexico, our contacts report Mexico is likely to face some growing pains. Electricity and water utilities will have to adjust production and distribution, workers may need new skills, and investors will expect Mexico’s rule of law to protect their plants and employees.

On both sides of the border, wait times at crossings can be extensive, leading to increased transportation costs and losses of that most critical resource: time. A nearshoring ecosystem will require improvements to infrastructure to ensure trade flows efficiently.

The question of infrastructure goes beyond our ports of entry. Technology advancements also pose opportunities and challenges in the manufacturing space on both sides of the border. Innovation continues to impact consumer demand and supply, as well as the way goods are produced. For example, electric vehicle production requires advanced technology, different materials and a workforce with new skills. As technology continues to evolve, businesses and organizations in the U.S. and Mexico will have to adapt to these changes and position themselves to maintain their competitive advantage.

Our contacts in manufacturing have shared that the labor market remains tight in the advanced manufacturing space in Mexico and the U.S. In addition, many contacts report new skillsets and workforce training are top of mind for them. Again, nearshoring provides a phenomenal opportunity for North America and the border region. No doubt we have some challenges ahead, but I am confident that conferences like today’s provide a great platform to assemble thought leaders from both sides of the border to discuss challenges and put our regional economy on a solid path.


In closing, the work we do to understand and analyze the U.S.-Mexico relationship is becoming more critical as we build deeper partnerships for economic growth. The relationship will continue to evolve, and that means our approach to understanding and analyzing it must also evolve. The unique and dynamic relationship is pushing us to go beyond simply studying the flow of capital, goods and people. We must also understand the socioeconomic linkages between our two countries, and there is no better place to do that than here on the border. Cities like Laredo will continue to play an important role in the evolution of our economic relationship with Mexico and how we understand that relationship.

The bottom line is this: The Dallas Fed recognizes that understanding Mexico and its economy is an important part of better understanding our own economy; helping us to make more informed monetary policy decisions. The conversations at this week’s Western Hemispheric Trade Conference certainly contributed to enhancing that understanding. We will need more forums like this to bring us together to identify challenges and opportunities, and to foster discussion on binational solutions for shared economic growth and prosperity.

Thank you for the opportunity to speak to you all today and I will now open the floor to questions.

Roberto A. Coronado

Roberto A. Coronado is senior vice president in charge of the El Paso and San Antonio branches and senior economist at the Federal Reserve Bank of Dallas.

The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.