Texas and the Paso del Norte region sit at the crux of the dynamic U.S.-Mexico integration

Good morning. I want to start by thanking the North American Development Bank for convening experts, decision makers and leaders to explore some very timely topics.

I am Roberto Coronado, and I’m a senior vice president and senior economist at the Federal Reserve Bank of Dallas. In my role, I’m responsible for the bank’s community engagement and development function, the team that builds deep, strategic partnerships with community and business leaders (like you) to help shape our understanding of the economy.

At the Dallas Fed, we are working to build a strong economy together. Our goal is for everyone in our region to have the opportunity to participate in the economy and thrive.

Thank you for allowing me to share some insights on the North American integration, particularly the key binational economic relationship between the U.S. and Mexico and how Texas is at the forefront of this. I promise I won’t talk about Tex-Mex food; I will stick to less controversial topics like trade, trade policy and capital flows.

I also am looking forward to highlighting the Paso del Norte region as a microcosm of the economic integration between the U.S. and Mexico. In addition to sharing my own observations from my research and experiences as a border citizen, I will point to the thought leadership from my colleagues at the Dallas Fed. They have built a significant body of work that is relevant for the discussion at this conference.

I would like to thank the team that helped me put these remarks together: Arturo Barrio, Isabel Brizuela, Jesus Cañas, Enrique Martinez-Garcia, Ron Mau, Elisa Morales, Pia Orrenius, Jesse Thompson and Luis Bernardo Torres.

Before I proceed, I have to note the views expressed today are my own and do not necessarily reflect official positions of the Federal Reserve System.

Dallas Fed serves communities and builds thought leadership

The Dallas Fed is one of 12 regional banks within the Federal Reserve System, and we cover Texas, northern Louisiana and southern New Mexico. Each regional bank serves its district with oversight from the Fed’s Board of Governors in Washington. Our decentralized structure is designed to connect with local communities across the country.

The Federal Reserve has five key functions. First: Conducting the nation's monetary policy to maintain stable prices and maximum employment. Each Reserve Bank conducts research and gathers insights about local economic conditions and shares this information with the Federal Open Market Committee, which is responsible for setting monetary policy. This helps ensure policy decisions are informed by a wide range of economic perspectives and experiences from all regions of the U.S.

The other four functions are:

• Supervising and regulating banks and other financial institutions.
• Maintaining a stable financial system by monitoring risks among financial institutions and markets.
• Supplying U.S. currency to banks and supporting a safe electronic payments system.
• Protecting consumers and fostering community development.

We also have a world-class team of economists who produce independent research and track economic trends and conditions. Today, I would like to highlight our Global Institute and the great work my colleagues are doing to shed light on the dynamic economic relationship between the U.S. and Mexico. The Global Institute, established in 2024, builds on the Dallas Fed’s legacy of international research and explores global trends and their implications for the U.S. economy and monetary policy.

U.S.-Mexico economic integration is vital

To set the stage, economic integration is typically studied via four channels: trade in goods and services; movement of people, labor and human capital; flow of capital and investment; and flows of ideas, information and technology. Around 3 percent of the U.S. population is comprised of people born in Mexico, illustrating the movement of people.

The U.S. and Mexico are further connected via capital flows. In 2025, Mexico received roughly $62.5 billion in remittances, with the vast majority originating in the U.S. While this money is used mostly for necessities (clothing, food and health care,) there is some evidence that households are also using the funds for productive activities that may contribute to economic growth in local communities. These are robust topics on their own, and the Dallas Fed has done research in these areas, but today I will focus on trade flows.

Throughout my career, I have had a front-row seat to the dynamics of the U.S.-Mexico economic relationship as well as the deep social and cultural connections. Without a doubt, the North American economic integration has intensified over the last three decades. Today, of U.S. goods exports, roughly 30 percent goes to Mexico and Canada. The relationship between the U.S. and Mexico is particularly key. Mexico has been the top trading partner for the U.S. since 2023, and last year, goods trade between the U.S.-Mexico reached $872 billion. In real terms (adjusted for inflation), total goods trade between the U.S. and Mexico has grown six-fold since the beginning of the North American Free Trade Agreement (NAFTA).

The composition of that trade has also changed. Prior to NAFTA, trade with Mexico was concentrated in specific industries such as agriculture, and it 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.

I would argue that NAFTA accelerated and deepened pre-existing production networks, and today bilateral trade contains a large share of both intermediate inputs and intra-industry trade. Over the last decades, there have been many events that strengthened and challenged this relationship, such as the Global Financial crisis, the COVID pandemic and shifts in U.S. trade policy.

Texas-Mexico economic relationship grows

Now allow me to bring the discussion closer to home, Texas. We can’t talk about the U.S.-Mexico economic integration without focusing on Texas and our role in the binational relationship. Texas alone represents over 64 percent of the total U.S.-Mexico border region. Texas is the top exporting state in the country, and Mexico is our top trading partner. Last year around 28 percent of Texas exports ($125 billion) went to Mexico. From 2020 to 2025, trade volumes between Texas and Mexico increased significantly, ranging from energy, agriculture and manufacturing. Three-fourths of the total land trade along the entire U.S.-Mexico border crosses through Texas. The ports that facilitate most of this massive trade are in Laredo and El Paso.

Mexico is a key market for U.S. energy trade, including crude oil, refined products, petrochemicals and natural gas. Mexico sources 75 percent of its natural gas from the U.S., much of which comes from Texas, and demand for natural gas in Mexico is expected to grow.

Put simply, Texas sits at the center of the U.S.-Mexico economic relationship. Given this reality, my colleagues at the Dallas Fed have produced extensive research and analysis on the various intersections of the Texas-Mexico economic relationship, because what happens on one side of the border impacts the other side.

Paso del Norte region is a microcosm of North American economic integration

In addition to the economic relationship, Texas and Mexico share deep, interwoven cultural and social roots built on centuries of shared history, geography, and continuous migration.

I grew up on one side of the border in the Paso del Norte region and studied and worked on the other side of the border. My home is a perfect microcosm of U.S.-Mexico interconnectedness. About 3 million people live in the region, which encompasses El Paso, Texas; Las Cruces, N.M.; and Ciudad Juarez, Chihuahua and the surrounding counties. The region has a long history of movement and trade that predates NAFTA and the U.S.-Mexico-Canada Agreement (USMCA) by a couple of centuries.

Last year, the Paso del Norte region accounted for 23 percent of total land trade between the U.S. and Mexico worth $178 billion. For generations, the industrial ecosystem on both sides of the border has developed in unison. I have seen many cycles and crises that tested these economic and industrial links, but the region always bounces back.

When NAFTA was implemented, the manufacturing landscape changed, impacting the economic dynamics of border towns. Ciudad Juarez was ground zero for the country’s manufacturing industry. The city pioneered the Mexican maquiladora model starting in the mid-1960s. Today, Juarez is the city with the largest concentration of maquiladora activity in Mexico, employing around 276,000 people as of the end of last year.

Over the last several years, we have seen a significant shift in global supply chains driven in part by the pandemic but also by changes in trade policies. This has resulted in a reshuffling of the manufacturing activity in the region from traditional sectors such as automotive and consumer electronics to newer sectors that require a higher skilled workforce and leaner operations.

As a result of this transition, Juarez lost 57,000 maquiladora jobs from mid-2023 through mid-2025. These losses were concentrated in the auto and transportation manufacturing sector, a vanguard of the maquiladora industry in Juarez that employed nearly one-third of the city’s maquiladora workforce in mid-2023.

Juarez is transitioning to a high-value, advanced manufacturing (automation) hub, producing goods such as data center servers and medical devices. Today, Juarez is seeing an increased need for higher skilled workers. I have enjoyed sitting in on the conversations between public and private sector leaders in the region as they explore collaborative approaches to developing the workforce to meet this need.

Mexico is a critical partner in the artificial intelligence build-out here in the U.S., accounting for one-fourth of products related to artificial intelligence (AI). Trade policy provides a favorable conduit for this relationship, as many AI and tech goods are qualified goods under USMCA. I will talk more about that shortly.

My team and I have met with leaders of some of the AI firms and visited their operations in Juarez. Through those conversations and visits, we learned that the region is well positioned to leverage decades of cross-border trade and manufacturing expertise. For us at the Dallas Fed, understanding these trade dynamics in real time and their influence on inflation, labor markets and economic activity is key to developing our views on monetary policy.

This is a perfect segue for me to share the latest research from the Dallas Fed.

How USMCA changes affect economic activity and inflation

I am going to highlight fresh research by two of my colleagues: Enrique Martinez-Garcia and Ron Mau. They have done really interesting work trying to unpack the impact of recent changes in U.S. trade policy on USMCA trade compliance, inflation and real economic activity in the U.S.

Let me start with the USMCA compliance.

The USMCA does more than merely provide a general competitive advantage to North American manufacturing companies; it also offers a lower-tariff route to the U.S. market for qualifying goods. Before 2025, many firms chose to pay the relatively low fallback tariff rather than incur costs for certification, documentation and regional sourcing. When tariffs outside USMCA increased, that calculation changed, and compliance rose sharply. By July 2025, approximately 80 percent of imports from both Mexico and Canada were entering the U.S. duty-free under USMCA compared with roughly 50 percent for Mexico and 40 percent for Canada previously.

Now shifting to inflation, my colleagues (Enrique and Ron) recently published interesting work on the impact of price levels stemming from tariffs. They find that relative to a counterfactual in which USMCA compliance remained at its 2024 level, increased use of the agreement reduced the realized average tariff by about 1 percentage point by the fourth quarter of 2025.

Under a benchmark in which import prices rise by the full tariff, this lowered the estimated personal consumption expenditure (PCE) price-level impact by about 9 basis points overall. Their research shows larger effects on goods (21 basis points) and durables (30 basis points).

They document that import content exposure varies sharply across consumption categories. Durable goods contain roughly 30 percent imported content (direct and indirect) compared with only 5 percent for services. This explains why tariff mitigation had more substantial effects on goods prices than on headline inflation.

The first six-year joint review occurred on July 1. The U.S. did not renew the agreement in its current form, although the USMCA remains in force while negotiations continue. With the annual review cadence in place, we have heard from industry contacts that uncertainty will continue. They tell us this will delay investment and expansion decisions.

Earlier this week my colleague Enrique (and a couple of co-authors) published an article exploring the broader real-economy implications of the negotiations and offered three main findings:

• First, the 2025 tariff shock changed the starting point for the USMCA negotiations. Higher and uneven tariffs outside USMCA increased the value of preferential access and made rules of origin and other conditions more consequential.
• Second, policy design produces very different outcomes.
• Third, a small aggregate U.S. effect can conceal substantial domestic disruption. They document that USMCA redesign can alter production, consumption and industrial geography within the U.S.

Altogether the key takeaways from this research are: The USMCA is both a buffer against external tariffs and an important part of North America’s economic architecture. Greater USMCA compliance reduced the effective tariff burden and moderated consumer price pressures in 2025. And lastly, the effects of renegotiation are not limited to tariffs or consumer prices. Different policy choices for a USMCA 2.0 can have real consequences for economic activity across the region and within the U.S.

U.S.-Mexico economic relationship reaches an inflection point

To conclude, my goal today has been to show you the importance of economic integration between the U.S. and Mexico, with Texas as a key driver of that relationship. While there are real headwinds—including significant uncertainty in trade policy—the economic ties between the U.S. and Mexico, and particularly between Texas and Mexico, have been developing for decades and have proven resilient.

We are at an inflection point. I would like to share a quote from someone I trust and respect. Alexandre Tombini, the chief representative from the Bank of International Settlements in Mexico City, put it perfectly: “The rules of the game are being rewritten; the new equilibrium is not yet defined.”

I want to commend NADBank for convening such a distinguished group of thought leaders from both sides of the border to discuss U.S.-Mexico economic integration at this pivotal moment. Many of us in this room are feeling the impacts directly, which is why conversations about navigating current issues and potential solutions are so essential.

Thank you, and I look forward to the continued discussion today.