Could Mexico help Texas become the US’ largest economy?

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Watch out California. Texas is coming for you.

That was the thrust of a panel discussion recently at the North American Development Bank’s 2023 summit in San Antonio.

The summit included federal, state and municipal authorities, along with business organizations, academia, financial institutions, investors, project developers and experts, from both the U.S. and Mexico, with the aim of spurring the development of infrastructure in the border region.

Shifting global supply chains in Mexico, increasing cross-border trade and a business-friendly climate in the region are helping the Lone Star State outpace California in population growth and gross domestic product, experts said.

“We’ve mentioned that we had a couple of panels … that discussed the fact that there’s been an exodus of individuals and companies from states like California and New York to Texas,” said Hector Cerna, president and CEO of the International Bank of Commerce in Eagle Pass, Texas. “According to Bloomberg News, there were 17,000 businesses since 2019 that have moved their headquarters or their businesses [from California and New York] to places like Texas. Obviously that brings individuals, payrolls. How does that impact our border? How does that impact the nearshoring that we anticipate, and do you anticipate … we see that number continue to increase [in Texas]?”

Cerna was moderating a Thursday panel discussion titled Investment Opportunities in the Border: Texas, Chihuahua, Coahuila, Nuevo Leon, Mexico. 

The panel included Emmanuel Loo, deputy secretary of economic development for the state of Nuevo Leon; Maria Angelica Granados Trespalacios, secretary of innovation and development for the state of Chihuahua; Enrique Martinez y Morales, a representative of the governor from the state of Coahuila; and Glen Hamer, president and CEO of the Texas Association of Business.

Hamer said Texas has been the biggest beneficiary of population declines in California, New York and Illinois the past several years.

“The reason why is that policies matter and that is good for the entire region,” Hamer said. “The stronger Texas is, the stronger the [Mexican] states of Chihuahua, Coahuila, Nuevo Leon and Tamaulipas are.”

Chihuahua, Coahuila, Tamaulipas and Nuevo Leon are in northern Mexico, along the Texas border. All four states have seen increasing growth in factories, jobs and foreign investments in recent years through nearshoring — which involves a company shifting some or all of its manufacturing to a location closer to its end customers.

“I believe [the Texas] workforce now is at an all-time record of 14 million, our population in Texas is north of 30 million people and growing, while California is 39 million and declining,” Hamer said. “Probably by about 2040 to 2045, Texas will have more people than California. We’ll be the top state in terms of population, and I would expect that we would have the No. 1 GDP within the United States, as well.”

The state’s population passed 30 million in 2022, according to the latest data from the U.S. Census Bureau. The population in Texas has grown every year since 2000, increasing by over 9 million people during that time span.

California’s population currently sits at about 38.9 million but has been decreasing since 2020. The state lost roughly 800,000 residents between 2020 and 2023, according to the nonprofit think tank the Public Policy Institute of California.

Texas’ GDP in 2022 was $2.355 trillion, compared to California’s $3.598 trillion, according to the U.S. Bureau of Economic Analysis.

California’s GDP grew 19% from 2020 to 2022; Texas economy grew 31% during the same period.

Loo said nearshoring has been occurring in Mexico for years but has soared since 2020, bolstered by declining U.S.-China trade relations and shifting global supply chains caused by the pandemic.

Nuevo Leon, where Loo helps expand opportunities for businesses, has attracted about $25 billion in foreign direct investment since 2021, including Tesla’s planned $5 billion electric vehicle factory near the city of Monterrey.

Loo said along with American firms, Nuevo Leon is seeing a lot of nearshoring interest from companies in China and Taiwan.

“We met with an organization in Taiwan that is responsible for exporting a trillion dollars of electronics to the United States,” Loo said. “We asked them how much of that business they expected to move to North America. They told us a spectrum of about $250 billion of foreign direct investment into North America. Those are numbers that we have never seen before when it comes to North America. Some of them are moving to Mexico. Some of them are also moving to Texas.”

Trade in total goods between Texas and Mexico reached $285.6 billion in 2022, a 24% year over year rise compared to 2021, according to the U.S. Census Bureau. In comparison, trade between California and Mexico totaled $91.3 billion in 2022, an 8% increase compared to 2021.  

Like Nuevo Leon, Chihuahua has recently seen tremendous growth in manufacturing plants and jobs. During the first six months of 2023, Chihuahua received about $1 billion in foreign direct investment from 30 new foreign companies, representing 1,300 new jobs. 

“We are seeing a brutal growth, an incredible expansion in Chihuahua, because we have key industries such as automotive, aerospace, medical devices, logistics, mining and agribusiness,” Trespalacios said. “We are also focusing on talent development, which is a challenge worldwide, because nearshoring is definitely a happy problem for everyone, but it generates important challenges.”

Char Miller, professor of environmental history at Pomona College in Claremont, California, said whether Texas or California is No. 1 is missing the point. 

“Texas, New Mexico and Arizona — in short the Southwestern part of the country — are linked together in their cross-border opportunities and prospects,” Miller told FreightWaves. “And because goods and services generally are so fluid — just drive Interstate 10 from Houston to Los Angeles, to see the physical manifestation of that idea — the notion of a zero-sum gain makes little economic sense. The posturing of the various states’ governors is a sideshow, in my view.”

While Texas may see population and GDP growth in the immediate future to close the gap with California, the issue of water and power generation could eventually slow developments in the Southwest, Miller said.

“Texas and California benefited enormously from post-World War II population shifts (that also benefited the South), as people migrated from the Industrial belt to the so-called Sunbelt,” Miller said. “Cheap energy, water and labor played a key role in all of that transition. But guess what, the Southwest’s draining of its water supplies, ground and surface; its escalating housing and labor costs; and the intensifying and lengthening of its heat waves are already raising the migratory impulse to head back north, not least to the Great Lakes (which hold 20% of all fresh water on the planet).”

Source: Freight Waves