PHOENIX – Threats to the future of the North American Free Trade Agreement and the cross-border commerce it facilitates could reverberate through the trade-oriented West Coast economy.
In California, trade with Mexico has grown much more important during NAFTA's lifetime, according to the California Chamber of Commerce.
The free-trade agreement among the U.S., Mexico and Canada took effect in 1994.
"In the last 20 years, two-way trade in goods between Mexico and the United States increased dramatically from $81.4 billion in 1993 to $531.1 billion in 2015," according to the chamber. "Mexico continues to be California's number one export market, purchasing 16.2% of all California exports. California exports to Mexico amounted to $26.8 billion in 2015, a 5.5% increase from 2014."
That growth may be threatened under President Donald Trump, who frequently criticized NAFTA during his campaign.
Few places have more at stake than San Diego, the border city of 1.3 million that is home to two of the busiest border crossings with Mexico. More people cross the San Ysidro crossing than any other, and the Otay Mesa crossing ranks second for truck traffic and third for people, according to the U.S. Bureau of Transportation Statistics.
"We have a greater dependency on cross-border trade than the rest of the country," said Paola Avila, the San Diego Regional Chamber of Commerce's vice president of international business affairs.
The value of trade at the Otay Mesa Port of Entry, one of three ports of entry in the San Diego-Tijuana region, exceeded $35 billion in 2016, according to the San Diego Regional Chamber of Commerce.
Trade with Canada and Mexico is also important to the rest of the country, Avila said, adding that New York City is a major trading partner with Mexico as well.
Many companies are co-located in Mexico and San Diego so that different components of the products they make can be added on either side of the border.
Using as an example the Toyota Tacoma, a light pickup truck manufactured in Tijuana, Avila said the dashboard might be built in San Diego, then moves across the border where the electronics are added, and then back to the U.S. for the GPS and electronic display components, finally returning to Tijuana to be installed in the truck.
NAFTA eliminated most tariffs on products traded among the three nations.
Canada and Mexico are the largest export markets for American goods, according to U.S. Census data, and Mexico ranks second and Canada third as the nations of origin for imported goods, a list topped by China. While some studies – and many voters -- blamed NAFTA for huge job losses in the years after its implementation others have found a more modest impact.
Legally, a formal renegotiation process would be required to change or withdraw from NAFTA that Trump has yet to set in motion. If it is, the effects could echo in California and across the country.
In the San Diego area, a significant portion of the economy is built on free trade, Avila said.
Many companies co-located in Tijuana and San Diego depend on white-collar work based in San Diego and the U.S., she said, including financial, legal, accounting, marketing, human resources, and research and development.
Cross-border trade has attracted companies to San Diego that might not otherwise be there, she said. Economists estimate that free trade created by NAFTA saves U.S. consumers $10,000 a year on the products they purchase, said Avila.
"We can do that back and forth, because of the free trade zone," Avila said. "If you remove the free trade zone, it doesn't just remove the tariff that New Hampshire might charge, because we aren't just trading with Mexico. We are jointly manufacturing products."
NAFTA also resulted in the TN1 visa that allows Canadian and Mexican business owners to work in the U.S. The visa requires the business owners to create jobs and invest, and that money would leave the economy if NAFTA were repealed, she said.
Joseph Krist, a longtime analyst and partner at Court Street Research Group in New York, said that commercial property values in areas bordering Mexico have increased in the years since NAFTA took effect, buoyed by the construction of infrastructure such as warehouses built to support cross-border trade.
Those taxes are a key revenue stream for local governments.
In the San Diego area, for example, San Diego County had about $1.3 billion of long-term debt outstanding at the close of calendar year 2015, while the city of San Diego reported about $2.5 billion in debt in its 2016 comprehensive annual financial report.
Krist also said that toll roads in states bordering Mexico could see some increased risk under a NAFTA repeal, mentioning San Diego's South Bay Expressway.
The road was a public/private partnership that failed in 2010, entering Chapter 11 bankruptcy, out of which it was sold in 2011 to the San Diego Association of Governments, which assumed control of the toll road and responsibility for its more than $90 million of debt.
A change in or end to NAFTA would also effect the northern border, where Washington state and the Seattle region have an important economic relationship with Canada.
In Whatcom County, Wash., the border county on the main route connecting Seattle and Vancouver, B.C., a 2015 Border Policy Research Institute study estimated that between 6% and 16% of taxable retail sales are attributable to Canadians.
Canada is Washington's second-largest export destination after China, receiving aerospace, mechanical, electrical, and automotive products produced there.
Krist said the impact of NAFTA repeal would be lower along the Canadian border because Canada was already a well-developed nation when it signed onto the treaty, whereas the Mexican economy was still developing and had enormous room to grow.
"There doesn't seem to be the same concern," Krist said. "I'm not as concerned about the northern border as I am about the southern border."
The effects of NAFTA are felt throughout the nation, and market participants in Texas have said that NAFTA has been beneficial for them as well. Keith Phillips, senior vice president and senior economist for the Federal Reserve Bank of Dallas, said earlier this month that trade with Mexico was a key factor in Texas' recovery from the 2008 recession, and that Texas would likely be among the hardest-hit states in a post-NAFTA trade showdown with its southern neighbor.
Eric Hoffmann, senior vice president and manager at Moody's Investors Service, said NAFTA has certainly altered the economies of border communities and California's Central Valley, a key agricultural center that exports enormous quantities of produce internationally.
He said he believes metro areas like San Diego have seen a modest credit benefit from the activity fostered by the treaty, and which they would presumably lose if NAFTA disappeared.
But even if NAFTA were repealed or altered such that trade was curtailed, said Hoffmann, the world has fundamentally changed since the 1980s.
"You can't just roll back to that world," Hoffmann said. "I think it's very hard to say what a post-NAFTA world would look like."
