Oct. 9, 2014 (San Diego) it is under the radar, just how much the economic life of San Diego and Tijuana are integrated. You will read this in business pages, but not in regular feature reporting. The problem is that this will determine the health of the region for generations to come. This is also changing how our economy works.
This is to the point that some economists, and research centers, like one at the University of California, San Diego, are starting to refer to our region as CaliBaja. This region is defined as San Diego County, Imperial County and the State of Baja California Norte. This area has a combined population of 6.6 million people.
Here is the other relevant data: The combined Gross Domestic product for the region is $202.4 billion. It has 28,656 square miles, a labor force of 3.1 million people. As a comparison the city of San Diego alone has an estimated total population of 1,355,898 in 2013 by the U.S. Census Bureau. Of this total population for the region, 2.8 million are actively employed.
Manufacturing and other core industries in North American are tightly integrated. This process did not start yesterday. It started before the North American Free Trade Agreement (NAFTA) was signed in 1992, but it has accelerated ever since.
Our region sees this in particular with electronics components, as well as textiles. There are other businesses where this is the case. Those two are the most relevant example, with some aerospace.
Integration is to the point that manufacturing done in Mexico, is part of the supply chain in the United States and Canada. This is particularly the case with the automobile and textiles industries. The Maguiladoras produce the goods that will be at times assembled and exported back to the United States. They will also build the parts needed in the parts secondary market.
How close are the two regions integrated? According to the American Society/Council of the Americas, in 2013 we saw the following indicators.
Over $1 billion in trade crosses the border every day. Mexico is the second largest destination for US exports.
2 million US jobs depend directly on Mexico, and 6 million more are indirectly tied to this trade. 692,000 of those jobs are in California. Strategic industries, such as machinery, minerals and fuels depend on this trade.
There is more, with a growing Mexican middle class, tourism from Mexico is also increasing in the United States. It goes without saying that tourism to Mexico has also gone up. Moreover,
“The San Diego-Tijuana border area, or the Cali Baja Bi-National Mega-Region, is a leading manufacturing and high-technology hub that spans both sides of the border, representing $202 billion in GDP in 2011 and a labor force of 3.1 million people.”
A recent study, from the University of California San Diego, reveals at even deeper levels how far our economy has been integrated.
The study looked at the economies of San Diego County, Imperial and Baja as separate entities and then as one single entity. It found:
As the primary economic drivers of the region, the San Diego and Tijuana metropolitan areas are at the heart of CaliBaja. In 2008, San Diego and Tijuana metropolitan areas were responsible for more than 1.5 million private industry jobs and represented more than 83 percent of the region’s workforce. As of 2013, San Diego-Tijuana was home to more than 2.1 million total jobs. In 2013, the bi-national region was home to over 1,470,000 jobs in San Diego, 60,600 jobs in Imperial Valley and 637,981 jobs in Tijuana (note that data was only available for Tijuana, not Baja California).
This is why the San Diego City Council has an office in Tijuana, and why there are multiple contact channels across the region, including the private sector and multiple Chambers of Commerce on both sides of the border.
There are other effects that have come from NAFTA. Asian nations, such as Japan, have used Mexico to enter the North American market. Building factories in Mexico, with product meant for the U.S. Market, is how they are doing this. This is one reason why Mexico and Canada were invited to join the Transpacific Trade Negotiations (TTP). Both nations have. For Mexico this means increased direct foreign investment in Mexico.
Other reforms in Mexico, such as that of the Energy sector, have led investors to see Mexico a very profitable market. Last year Foreign Direct Investment was to the tune of $23 billion.
Much of it is in manufacturing with one example Anheuser Bush Inbev buying the Modelo Group in Mexico for $13 billion. With the signing and ratification of the TTP economies will become even further integrated across the Pacific Rim.
The Dark Cloud
As early as the 1990s economists started to raise questions. NAFTA was having another effect on the American and Mexican economies. It was flattening wages. Víctor López Villafañe wrote in 2001 in an academic paper, paraphrasing Richard Rosencrance ,
The United States would be a typical economy that corresponds to a leader nation (or head nation) given that most of its inland activities correspond with the services sector, whereas their manufacturing activities are being transferred to the outside. On the other hand, Mexico can be classified as a body nation, for it is receiving a large amount of manufacturing industries from the United States, especially in the field of the automotive industry.
This led to the lost of industrial, middle class, jobs in the United States. They have been replaced by mostly service industry jobs that have much lower pay. This has also widened the gap between skilled and unskilled labor in the United States. This has also happened in Mexico, where the gap is not just between labor classes, but regions.
In the CaliBaja region we have also seen this. While Mexicali has a very strong Aerospace industry, San Diego used to have such an industry. While there is a large electronics-manufacturing base in Baja, most of those factories are gone in the United States.
Given current trends with Free Trade Agreements, not just limited to the TTP, these trends of integration and fundamental changes in the national economy will continue.
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