Laredo, about America southern border, doesn't look like a crown jewel. The Texas city of 250,000 feels more like a dusty commercial outpost in the middle of nowhere. Of course, there is a picturesque center. Laredo dates back to 1755, making it older than the United States, although for part of its history it was almost as poor (and not as fun) as Nuevo Laredo, the Mexican town just down the road. other side of the Rio Grande. However, since the covid-19 pandemic, it has become a shining symbol of American commerce. This is expected to be the first year that the value of goods moving through Laredo eclipses that of any other port in America, even that of mighty Los Angeles, where goods are shipped from China.
The Laredo business is lubricated by axle grease. Every day, about 20,000 trucks travel across its two commercial bridges, carrying everything from cars to chewing gum. Commerce is booming. The value of imports and exports passing through the inland port increased by 8% between January and October, year-on-year. This goes against the trend in other ports, such as THERE, where trade declined. Due to bilateral road transportation restrictions, all of these goods must be transferred between U.S. and Mexican drivers, requiring 4 million square feet of warehouse space, an area larger than Manhattan's Central Park. Investments are pouring in. Over the next two years, the city is expected to add another 10 million square feet of warehouse space. It's intimidating to think about. The number of trucks is already so large that traffic jams can stretch nearly 10 miles to Mexico.
The explanation for this buzz is Nearshoring, which posits that, given the risks of overburdened supply chains and the trade war with China, manufacturers should set up shop in North America. Although the potential is enormous, it is so far more visible in truck traffic than in investment flows. This year, Mexico once again became the United States' largest trading partner, surpassing Canada and China. Yet foreign investment in Mexico as a whole, while increasing, does not signal an influx of new money. The problem is political. There is something about border crossings that breeds madness among elected officials. Instead of keeping vital arteries clear, they prefer to erect barriers. Laredo is a good example.
It's an unusual city. With a 95% Hispanic population, most people, even those who have lived there for generations, speak Spanish. Many residents feel as much cultural affinity with Nuevo Laredo, even though the city is rife with violence, as with other parts of America. This became clear at a meeting of the Border Trade Alliance (BTA), a coalition of business leaders and local officials, in Laredo this month. After greeting each other in the Mexican style abrazosThose present quickly turned to concerns about decisions made in Austin, the Texas state capital, and Washington, CC, which hindered the free movement of goods. Héctor Cerna, the BTAThe state treasurer says knee-jerk policies linked to illegal immigration have affected the supply of vegetables to American supermarkets, Corona beer to distributors, auto parts to companies like General Motors and Nissan, and in refrigerators for companies like Whirlpool. “It’s self-inflicted pain,” he says.
Go to the Colombia Solidarity Bridge on the outskirts of Laredo and you'll see what he means. Built in preparation for the start of the North American Free Trade Agreement (NAFTA) in 1994, it was once called the “bridge to nowhere”, because there was no highway on the Mexican side. Today it is a thriving transit point for avocados, cherry tomatoes and other goods from Mexico. Yet Texas Governor Greg Abbott wants to force Mexico to do more to stop the wave of migrants trying to enter America. Under his orders, state law enforcement enforces random safety checks on vehicles that have already passed. WE customs, creating long queues. The result is spoilage and ruined just-in-time delivery times. The costs are passed on to consumers.
The border crisis has led to other counterproductive policies. BTA Delegates complained that Customs and Border Protection, a U.S. federal agency, responded to the influx of asylum seekers by temporarily closing international bridges to free up manpower to process asylum applications. This forces shippers to wait or divert shipments elsewhere. Logistics executives fear that hot-button issues such as illegal immigration and fentanyl will take center stage in next year's U.S. presidential election, sparking even more trade-disrupting grandstanding. No one knows yet whether Donald Trump, the most likely Republican candidate (and wall builder in chief), will continue with his ruinous plan to impose a 10% levy on all imports to America. But by 2026, whoever heads the government will oversee a six-yearly review of the USMCAan update of NAFTA signed by America, Canada and Mexico in 2020. Given its importance to the trio's economies, it will likely survive. But opponents of free trade with Mexico, like Florida fruit growers, are already pushing for a trade war.
The threats to cross-border trade are of course not solely of American origin. Andrés Manuel López Obrador, Mexico's president, has committed his own act of sabotage by imposing state control over the energy sector, discouraging companies from setting up operations in Mexico. He militarized the border, placing surveillance of trade in the hands of soldiers with little customs experience. Anarchy is another obstacle.
Light up the border
However, in the United States, the border is always a delicate subject. Those far away see it as a place of chaos and crisis. Those who live nearby believe that if only this area were managed more sensitively, it would lead to more trade and a regulated flow of guest workers to ease the labor shortage. Laredo's love of bridges is a testament to their optimism. It hopes to soon increase this number from four to five, thanks to a new commercial bridge built as part of a public-private partnership. Mexico gave the green light. But Washington officials are delaying approval of permits. Here the focus is directly on the walls. ■
Learn more about Schumpeter, our global trade columnist:
Elon Musk's messianic complex could bring him down (December 5)
Charlie Munger was much more than Warren Buffett's sidekick (November 29)
The Many Contradictions of Sam Altman (Nov. 22)
Also: If you would like to write to Schumpeter directly, email him at [email protected]. And here's an explanation of how Schumpeter's Column got its name.