Karla Bernal

Business

Welcome to Texico!

Mexico makes Texas richer. But will that continue?

How can we get a handle on the importance of Mexico to Texas’ economy? One way is to imagine Mexico wasn’t just across the 1,200-mile border. In that scenario, Texas would lose almost $100 billion a year in exports, or about 37 percent of its total foreign merchandise sales in 2017. About 12 percent of Texas workers were born in Mexico, so they’d be swept away, too.

A second—and more interesting—way is to imagine Texas and Mexico as one economy, connected by exports, imports, migration, cross-border business investments, transport infrastructure, tourism, and knowledge transfers. As a combined economy, Texas and Mexico churn out an annual GDP of more than $4 trillion, enough to rank as the world’s sixth-largest economy, just behind Germany and ahead of Russia.

We denote this sprawling and diverse economy by the portmanteau word: Texico. The name captures the reality that over the past quarter-century the Texas and Mexico economies have emerged as highly integrated, making an often-unsung contribution to Texas’ reign as America’s top-performing state economy.

Yet, Texico’s future is uncertain. In both the United States and Mexico, voters fed up with economic change have chosen leaders who campaigned on turning back the clock and restoring old ideas that favor protection over production, and isolation over integration. Texas and Mexico find their economic partnership at risk—at least on the Texas side, by forces beyond its control.

Stronger Together

Neighbors through the caprices of geography and history, Texas and Mexico didn’t start to really deepen their business connections until recent decades, when the economics and policy were finally favorable. Texas had to diversify away from commodities, including oil, and embrace globalization, which didn’t occur until the past quarter century. Mexico had to open its long-closed economy to foreign trade and investment, which also didn’t occur until the past quarter century.

By geography and temperament, Texans were ready to do business with their neighbor to the south. An often-cited gauge of integration is trade—exports moving south, imports moving north. They totaled $188 billion last year, or more than 11 percent of gross state product, separating Texas from all other states in doing business with Mexico.

Texas companies are finding business opportunities in Mexico—among them, cosmetics-maker Mary Kay Inc. and telecommunications giant AT&T Inc., both based in Dallas-Fort Worth. At the same time, Mexican companies are heading northward and expanding their businesses, including Mission Foods in Irving and the movie theater chain Cinépolis in Addison.

The Texas and Mexico economies are more formidable combined rather than separate. Binational supply chains, for example, take advantage of low production costs in Mexico and highly skilled professional labor in Texas. The companies emerge more competitive in the global marketplace, able to sell their wares at a better price.

Automobile production comes to mind—for good reason. Plants in the Dallas-Fort Worth area are on the northern edge of the Texas-Mexico Automotive SuperCluster region, which includes close to 30 assembly plants and more than 230 parts suppliers in Texas and Mexico’s northern states.

Texas and Mexico have already profited a great deal from their binational economy, even though work began in earnest only recently. Mexico didn’t open its energy and telecom markets until just a few years ago. During negotiations that led to the North American Free Trade Agreement, Mexico clung to its monopolies in these industries. With its oil output falling, Mexico finally lifted its ban on foreign oil and gas companies three years ago. If all goes well, this should be a bonanza for Texas, with its deep roster of oilfield services and exploration companies. The telecom monopoly expired about the same time—and AT&T rushed in with its wireless service.

So Texico, as an economic space, is still a relatively young concept, a work in progress with immense untapped potential.

At a Crossroads

States don’t make trade policy, so Texas may have little say on whether its southern border remains open for business. Key decisions on Texico’s future will be made in Washington, D.C., and Mexico City. Once so solid, the long-term commitment to an economic partnership between the United States and Mexico has been replaced by uncertainty—an anathema to business.

From the beginning of his presidential run, Trump has been hostile to Mexico, threatening to pull the U.S. out of NAFTA and fence off Mexico behind a wall. In late August, negotiators for the two countries reached the framework for a new NAFTA deal, but its fate is still up in the air. Mexico’s president-elect, Andrés Manuel López Obrador, who will take office in December, has been cryptic about whether he intends to keep Mexico open for business or veer toward the economic nationalism he espoused earlier in his political career.

Texans are well aware of Mexico’s shortcomings, including corruption and drug-cartel violence. None of these problems will get any better by enacting policies that build barriers against Mexico and harm the Texas and Mexico economies. Perhaps Trump and Obrador will decide that the best course lies in expedient practicality—recognizing the fact that Texico has been working and building a large constituency. If these two leaders don’t make a mess of things, the businesses of Texas and Mexico can take it from there.


W. Michael Cox is founding director of the William J. O’Neil Center for Global Markets and Freedom at Southern Methodist University. Richard Alm is writer-in-residence at the center.

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