View of the border fence between Mexico and U.S. taken from Mexico's side on Jan. 25 in Tijuana. (Guillermo Arias/AFP/Getty Images)

 

Near the small border town of Presidio, Tex., a steel pipeline is being built that will cross below any wall that President Trump erects.

Buried four feet below ground, the Trans-Pecos pipeline will carry natural gas 143 miles from a hub in the dry scrubland of west Texas to the waters of the Rio Grande. There it will flow into a line belonging to the Comisión Federal de Electricidad, Mexico’s federal electricity commission.

The Trans-Pecos gas pipeline is one of a dozen under construction or in planning stages to provide a ready market in Mexico for fast-growing U.S. natural gas output. Mexico has bought more than half of all U.S. natural gas exports since April 2015.

The burgeoning pipeline network is just one sign that trade is a two-way street. Trump has complained about imports from Mexico, but U.S. exports to Mexico are also substantial, including natural gas, wheat, corn, banking services, high-value electronic components for automobiles and inputs for appliances.

If the president followed through with threats to slap a 20 percent tax on imports from Mexico, retaliation by Mexico could threaten those companies too, and the jobs of people who work at those companies.

“Mexico has become one of our top three trading partners,” said Gordon Hanson, a professor of international economics at the University of California San Diego. “There are a close to a couple of dozen states for which Mexico is the top export destination.”

White House press secretary Sean Spicer told journalists aboard Air Force One on Jan. 26 that President Trump's border wall will be paid for through a 20% import tax. (The Washington Post)

Imports of goods and services totaled $316 billion, but exports totaled $267 billion in 2015. Mexico became the second largest market for exports of U.S. goods.

According to the U.S. Chamber of Commerce, 6 million U.S. jobs depend on U.S. trade with Mexico. And the Wilson Center has estimated that 40 cents of every dollar’s worth of goods imported from Mexico is actually made in the United States.


Nearly half of those exports are machinery, electrical machinery and vehicles. And many of them travel circuitous routes from one country to another, journeys that would be difficult to pull apart.

The automobile industry is among those that have developed supply chains that cross national boundaries since the adoption of the North American Free Trade Agreement.

“There is no longer any such thing as an American car, a Canadian car, or a Mexican car,” Christopher Wilson wrote in a report for the Wilson Center last September. “Mexican oil, for example, might be sent to the United States to be refined and turned into raw plastic in Louisiana, before being sent to an injection molder in the U.S. Midwest that creates the components for a car's dashboard. Those parts might return to Mexico for assembly at a factory along the border and then used in the final production of a car in the Bajío.”

Those cars would probably return to the United States to be sold to consumers, but Mexican plants could also ship them to countries throughout Latin America.


According to the Department of Commerce, U.S. auto parts sales to Mexico have grown from $17.5 billion in 2010 to $30 billion in 2015, an increase of more than 70 percent. Fifty-three percent of all auto part imports into Mexico were from the United States in 2015, according to an Industry Week interview last year with Monica Martínez, a commercial specialist for the U.S. Embassy in Mexico City. Major Mexican imports from the United States include components for harnesses, parts, stamped parts, accessories for bodies, engines, audio and video devices, seats for vehicles, air bags, automatic gearboxes, differential axles, clutches and tires, she said.

So Mexican cars sold in the United States usually include parts made in the United States.

The U.S. makers of those components get an advantage from selling to Mexico, which is a launching pad for sales to other countries. Pascual notes that Mexico has free-trade agreements with more than 40 countries, more than the United States and most other countries. So selling manufactured goods to Mexico is a good way for U.S. exporters to get easier access to markets than they would from exporting directly, he said.

Supporters of new import taxes similar to one being drawn up by House Republicans argue they would level a playing field that has exporters effectively paying U.S. taxes on goods made here while importers are spared the expense. Some argue a tax would make American-made goods more competitive, and help drive new jobs.

But U.S. importers of goods from Mexico might either buy from other countries or raise prices to U.S. consumers.

Economists say that Trump’s plan might push down the value of Mexico’s currency, the peso. That would make Mexican-made goods cheaper, offsetting the tariff, the administration has said. But Hanson notes that a strong dollar would make U.S. goods more expensive and would make it harder than ever to export them. “By impoverishing Mexico we partially undo those changes in trade,” Hanson said.

Energy exports are a key chunk of that trade.

General Electric has been eyeing 15 projects in Mexico that might use its gas turbine, according to a report in Bloomberg News. In an interview last year, Alvaro Anzola, GE’s Gas Power Systems director in Latin America, said “Mexico is the most important, hot market we have in Latin America right now.”

“The U.S. is the principal supplier of natural gas to Mexico,” said former U.S. ambassador to Mexico Carlos Pascual, now senior vice president of I.H.S. Markit, a consulting and data firm. “We supply over half of the natural gas sold to Mexico’s consumers, and almost half the gasoline Mexico consumes.”

With rising shale oil and shale gas production, an expansion of pipeline infrastructure on both sides of the border will likely keep those exports growing. “This expansion should be accompanied by a dramatic infrastructure build out within Mexico including not only pipelines, but power generation capacity, transmission lines and other infrastructure,” Citigroup said in a recent report to investors.

Part of this success is due to an opening up of Mexico’s oil-and-gas industry, which has long rested entirely in the hands of the state. This was a major priority for U.S. diplomacy and U.S. energy companies, which also want to drill for new supplies of oil and gas in Mexico.

Citigroup, too, has its own stake in the southern neighbor. It is the second largest bank in Mexico. And the bank is not backing away from the Mexican market. Instead, it has told investors, if Trump’s tariff plans force a depreciation of the Mexican currency that would only make Mexican exports more competitive in the global economy.

Pascual thinks Mexico will wait to see whether Rex Tillerson, once he is settled into his post as secretary of state, guides Trump away from a big tariff. But Pascual notes that the Mexican elections could pit an anti­­American political outsider against a candidate of incumbent Enrique Peña Nieto’s centrist Institutional Revolutionary Party, a matchup that may put pressure on Nieto to retaliate against U.S. moves. Nieto himself cannot run for a second term.

Even though the story of U.S.-Mexico relations is about interconnectedness, Trump’s version is all about walls, physical and economic.

“We ship to Mexico, they ship it back, we ship it back. And value is added,” said Ken Rogoff, a Harvard University economics professor. “The idea that NAFTA has been, that trade with Mexico has been, a major negative factor for the U.S., that it has undermined U.S. growth, is hard to fathom.”

An earlier version incorrectly suggested Mexican President Enrique Peña Nieto may seek another term. Mexican presidents are limited to a single six-year term. This story has been updated.

Prices could go up for avocados, tequila and other imported goods if President Trump imposes a 20 percent tax to fund a border wall. (Victoria Walker/The Washington Post)