Trade with Mexico may enhance U.S. global competitiveness, says Dallas Fed’s Southwest Economy

For Immediate Release: June 28, 2017

DALLAS—Trade with Mexico may enhance U.S. global competitiveness, according to a new economic model detailed in the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.

Since the North American Free Trade Agreement (NAFTA) was implemented in 1994, U.S.–Mexico trade volume has increased, and the two countries’ business cycles have become more synchronized, write Jesus Cañas, Aldo Heffner and Jorge Herrera Hernández in “Intra-Industry Trade with Mexico May Aid U.S. Global Competitiveness.”

“[This] synchronization is the consequence of production sharing, which has intensified after NAFTA,” said Cañas in a video accompanying the publication’s release. “Mexico’s industrial production follows U.S. industrial production.”

Much of the trade volume between the two countries—perhaps as much as half, according to studies cited in the article—is made up of intermediate goods, or items used to produce finished products. A new economic model by Banco de México shows how imports from Mexico are used in the manufacture of U.S. exports, which may enhance U.S. global competitiveness.

“Intra-industry trade or production sharing means that both countries trade the same product at different stages of the production process,” said Cañas. “Each country specializes in what they do best. The result is a high-quality product at a reasonable price.”

Due to the importance of this relationship, the authors say, potential renegotiation of NAFTA—while presenting some areas of opportunity—should also take into consideration the implications for U.S. trade not only with Mexico, but with the rest of the world.

Also in this issue of Southwest Economy, Kelly Klemme and Edward C. Skelton take a look at the region’s banks, which continue to struggle with the aftereffects of the downturn in energy prices.

In “Eleventh District Banks Confront Challenging Energy, Rate Situation,” the authors discuss some of the challenges facing the industry and why higher anticipated benchmark interest rates may provide little immediate relief to bank balance sheets.

In this issue’s “Spotlight” article, Justin J. Lee and Kelvinder Virdi provide an update on Texas’ wind-power industry, which has grown steadily since 2006. Their article examines some of the factors behind this continued expansion, including population growth, tax benefits and restrictions on building conventional power plants.

This issue’s “Go Figure” feature provides a graphic visualization of the U.S. cattle industry and how certain stages of the supply chain may inflate the prices consumers pay for beef. This issue also includes an “On the Record” conversation with Rad Weaver, chief executive officer of McCombs Partners in San Antonio.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org