EL PASO

NAFTA helped Texas border cities, Fed report says

Vic Kolenc
El Paso Times
Cars head north into the U.S. at the Bridge of the Americas between El Paso and Juárez. A new report from the Federal Reserve Bank of Dallas concludes that the North American Free Trade Agreement helped cities on the U.S.-Mexico border.

El Paso and other cities on the Texas-Mexico border have benefited from the 22-year-old North American Free Trade Agreement despite losing thousands of manufacturing jobs, a Federal Reserve Bank of Dallas economist concludes in a new report.

The report comes just weeks before Donald Trump will become the nation's 45th president with his campaign vow to withdraw the United States from the trade agreement with Mexico and Canada in hopes of getting lost manufacturing jobs to return to this country.

Enacted in 1994, NAFTA aimed to spur economic growth by phasing out numerous trade tariffs between the three nations. Many factories, mostly garment makers, moved out of El Paso and other border cities after the agreement and other trade changes took effect.

"Texas border cities have been largely able to adjust to trade, taking advantage of geographic location to exploit NAFTA-derived opportunities and growth in northern Mexico," wrote Jesus Cañas, business economist at the Dallas Fed, in an article in the bank's newly published "Southwest Economy" magazine.

Texas exports have grown significantly in recent years to become the top exporting state in 2015 behind California, the Dallas Fed report noted. El Paso climbed to be the 11th largest exporter of goods among 388 metro areas in the United States in 2015, the El Paso Times reported in September.

However, Cañas noted, "Trade expansion, while fueling overall growth and fostering the economy’s global competitiveness, has not been achieved without dislocation of workers, declines in certain industries, and other difficult adjustments, notably among Texas border communities."

Forty-five percent of the estimated 49,652 Texas job losses between 1994 and 2014 tied to NAFTA and other changes were concentrated on the Texas-Mexico border, according to federal data in the Dallas Fed report.

El Paso alone lost about 18,500 jobs in that 20-year period, or 37 percent of the lost Texas jobs, according to the Dallas Fed report. Most of the lost jobs were in garment factories that moved to Mexico or other countries.

The lost manufacturing jobs have been more than made up by growth in other sectors, especially the service-producing sector, which has increased to 70 percent of the El Paso and Brownsville economies — up from around 55 percent in 1994, according to Cañas.

The ReadyOne Industries garment factory in East El Paso is one of a handful of garment factories still operating in El Paso. Many of the city's garment factories closed after the North American Free Trade Agreement took effect in 1994.

Cross-border manufacturing operations and distribution centers, including in El Paso-Juárez, have become important parts of corporate strategies to create competitively priced goods for worldwide markets, he noted.

"A 10 percent increase in manufacturing on the Mexican side of the border increases employment 2.2 percent in Brownsville, 2.8 percent in El Paso, 4.6 percent in Laredo and 6.6 percent in McAllen," Dallas Fed research shows, Cañas said.

El Paso and other border cities received millions of federal dollars to retrain workers who lost their jobs due to NAFTA and other trade-related reasons, Cañas noted.

A federal audit released in 2001 questioned the effectiveness of a large, federally funded retraining program in El Paso, known as El Paso PREP, because many of the 4,275 trade-displaced workers who went through the program ended up in low-paying jobs and ended up receiving thousands of dollars in living assistance, which boosted the cost of the program from $45 million to $106 million over three years, according to El Paso Times archives.

While displaced workers initially found jobs that paid less than their manufacturing positions, Texas border cities have since enhanced their industry mixes and succeeded in moving people into higher-paying jobs, Cañas said.

Growth in U.S. Customs and Border Patrol jobs along the border also have helped grow the border economies, he said. The mix of better-paying jobs has boosted per capita income in El Paso, Laredo, McAllen, and Brownsville, and has lowered the unemployment rate in border cities, according to the Dallas Fed report.

NAFTA also has helped spur foreign investment in the border cities, Cañas said.

Foreign-owned establishments accounted for 9 percent of private employment in El Paso in 2011, the latest data available — the highest in Texas — as well as 5 percent in McAllen and 4 percent in Brownsville, according to Brookings Institution data in the Dallas Fed report.

Trucks line up in El Paso to enter the free Bridge of the Americas. Increased trade spurred on by the North American Free Trade Agreement has helped the economies in El Paso and other border cities, a Federal Reserve Bank of Dallas report concludes.

Uncertainty about what President-elect Donald Trump will do with NAFTA and other trade agreements has some economists lowering their economic-growth forecasts for El Paso and Mexico.

"At present, the jury is still out on how the incoming Trump administration will affect the Borderplex and Mexico," Tom Fullerton, an economics professor at the University of Texas at El Paso, told the El Paso Times recently.

"Both Canada and Mexico have stated that they are willing to discuss modifying and updating the North American Free Trade Agreement. If that path is taken, there is no reason to anticipate any large scale disruptions to regional economic conditions, either favorable or unfavorable," Fullerton said.

Cañas said the benefits of expanded international trade have not been equally distributed around the United States.

"Texas and its border communities provide a useful case study of what attributes and strategies may help trade-impacted communities transition to the next level of economic development," Cañas concluded.

Information: dallasfed.org/research

Vic Kolenc may be reached at 546-6421; vkolenc@elpasotimes.com; @vickolenc on Twitter.