They are known as "Los Dos Laredos" -- the two Laredos. But Laredo, Tex., and Nuevo Laredo, Mexico, are one metropolis -- even if they are divided by a river and an international border.

"As goes Nuevo Laredo," said Les Norton, whose family owns three clothing stores here, "so goes Laredo."

Laredo cringed this year when the State Department issued an alert warning U.S. citizens of a violent drug war in Mexico. In recent weeks, the city's fears have been realized.

The alert has crippled tourism in some Mexican towns and has so damaged the economy there that a slowdown has crept into the United States and is beginning to erode the fragile economies of U.S. border towns.

One of Norton's sprawling and eclectic stores, a boutique called La Fama, is in downtown Laredo, 200 yards from Mexico. On the wall are a Tommy Hilfiger flag, a sign offering $49.99 "sombreros de paja" -- straw hats made by Stetson -- and an ad for Wrangler jeans that reads: "Cual es tu estilo?" ("What is your style?")

The store is emblematic of a quiet but important piece of the border economy, one that relies on moneyed Mexicans who travel north to buy clothing, electronics, toys and perfume. This spring, that river of commerce has begun to run dry.

In recent months, retail sales have fallen about 40 percent in Nuevo Laredo, said Clema Owen, chairman of the Laredo Chamber of Commerce and a marketing and conference coordinator at a Holiday Inn. The job market is shrinking, and restaurants and shops have closed.

As a result of the faltering economy, fewer affluent Mexicans are traveling north to dine, go to the theater or shop in Laredo's stores. And fewer Americans are traveling south to Nuevo Laredo because they think even short trips across the border are unsafe.

"Our business is slow," said George Talamas, whose son owns a store called Marglo II, which sells watches and calculators five blocks north of the border. "People just don't have the money to spend."

Most business leaders say it is too early to gauge losses. But merchants and business people -- in restaurants, shops and hotels -- report that business is down.

Hundreds of hotel room reservations have been canceled. At a meeting last month of the Laredo Hotel/Motel Association, every manager reported dropping sales, and the Holiday Inn was down 10 percent last month compared with the same weekend in 2004, Owen said.

Scores of tour buses have stopped pulling into Laredo. General managers at several large restaurants estimated that south-to-north business has fallen by 15 percent to 20 percent, although overall sales have not fallen as sharply because Laredo's population is growing.

"This is a totally integrated community," Owen said. "The Mexican traveler who comes here has a cell phone for every family member, drives here in a new car and comes with cash to spend. People are very, very dependent on the Mexican market for their success. They have to have it to survive."

The State Department issued a "public announcement" in January warning U.S. citizens about what it called a "continuing, unsettled security situation" in northern Mexico. State Department officials said they understood that the announcement might hurt Mexican towns that relied on tourism but said their first obligation was to protect U.S. citizens.

According to the announcement, the violence in northern Mexico began after the leaders of several criminal organizations were sent to prison, creating a "power vacuum" on the streets. New leaders dueling for control over the narcotics market sparked the increased violence, the U.S. government said.

Other U.S. cities that share the border with Mexican cities also have begun to feel the pinch. They include Brownsville, Tex., across the border from Matamoros, and Nogales, Ariz., across from Nogales, Mexico. The announcement has not had a noticeable effect along the California-Mexico border.

Perhaps no place has been hurt as much as Laredo and Nuevo Laredo, because the announcement singles out Nuevo Laredo as the epicenter of the recent drug war.

The two cities, home to 700,000 people, are near the southern tip of Texas, and each feeds off the other. Because of the business that comes north from Mexico, Laredo has the nation's busiest Wal-Mart, measured in sales per square foot.

That peaceful symbiosis has been shattered by a series of killings in Nuevo Laredo. Some of the violence has taken place in tourism centers, including daytime shootouts near shopping areas and on streets that lead to the two bridges connecting the cities. One of the shootings spilled onto the Mexican side of one bridge.

Laredo has long been a destination for small- and medium-size business conventions that are a staple of the region's economy. An area chapter of the National Association of Housing and Redevelopment, for example, held its annual conference here in April.

U.S. companies that operate "maquiladoras" (factories) along the border, taking advantage of reduced labor costs and tax breaks, also come to Laredo for large meetings.

Part of the draw for those conferences -- as well as countless family vacations to Laredo -- is what Owen calls the "two-nation vacation."

"People like to take pictures next to the sign that says, 'Welcome to Mexico' and tell people that they walked there," she said. "It's a big draw."

Now, economic development officials say a number of companies and organizations have canceled plans for conventions and meetings because they fear they can no longer enjoy both sides of the border.

The University of Texas Health Science Center, for instance, canceled an event in recent weeks -- leaving the Holiday Inn scrambling to fill 350 rooms. Officials in Laredo said they were told that the event was canceled because of safety concerns. A science center spokesman called the move "a business decision."

Kelly Shannon, a spokeswoman for the State Department's Bureau of Consular Affairs, said the impact of the department's public announcement must be considered secondary to the government's duty to protect U.S. citizens. "Our intent is to ensure that American citizen travelers are informed of situations potentially affecting their safety and security," she said. "We are trying to provide the most current information to them. Whether or not the U.S. travel warnings affect Mexican-citizen travel, I don't think we can quantify that."

Officials along the border say the alert overstates the threat posed to visitors. Many of the crime victims -- from the United States and Mexico -- were drug suspects, said Arturo Salgado, vice consul at the Mexican Consulate in McAllen, Tex. Tourists rarely have been affected by the violence, he said.

"The drug dealers are killing themselves," Laredo Mayor Betty Flores said. "Are there killings? Yes. But I always want to know: Who was it? Why were they killed?"

Shannon agreed that "the vast majority" of the people who cross into northern Mexico "do so safely." But she said the warning was specific, warning U.S. citizens to restrict their visits to "legitimate business and tourist areas of border towns during daylight hours."

A security guard walks on a quiet street in Nuevo Laredo, Mexico, but a series of killings by rivals in a drug war led the U.S. State Department to issue an alert that has discouraged U.S. tourists in northern Mexico and southern Texas.