Talk about timing. At long last, San Diego and Tijuana have reached a level of economic collaboration that has many excited about the region’s future as a potential economic powerhouse.
And why not? San Diego is rocking as a life sciences and wireless hub, and Tijuana has elevated itself dramatically. No longer simply a cheap labor pool — or a hotbed of drug violence — Tijuana boasts an increasingly sophisticated manufacturing sector. Boosters have been promoting the border region as a mecca for innovation and growth opportunities.
The big question now, of course, is:
Will that progress be Trumped?
President Donald Trump is not a fan of U.S. businesses expanding or relocating operations in Mexico. He has talked of renegotiating the North American Free Trade Agreement (NAFTA) or getting rid of it altogether. It was that treaty that helped open the door to Mexico’s manufacturing growth and, ultimately, to San Diego and Tijuana’s promising melding.
Trump has talked about building a wall, but key San Diego and Tijuana leaders want to tear down barriers.
“Instead of building a wall, we’re building a bridge,” said Mark Cafferty, president of the San Diego Regional Economic Development Corp. (EDC) on the second anniversary of Tijuana Economic Development Council Day in August. “We don’t see the border as a divider; rather, it is something that unites us all. The CaliBaja region is a creative melting pot full of smart people and companies that are changing the world. By working together, we are creating a mega-region that serves more than 6 million diverse residents.”
So, does a Trump presidency cloud that future?
Many are taking a wait-and-see approach when it comes to what the new president will do. However, anxiety levels are high, given how Trump attacked trade deals during his campaign, a message that obviously resonated in the nation’s Rust Belt.
“There’s a tremendous amount of uncertainty right now,” said Nikia Clark, the executive director of World Trade Center San Diego, which is an affiliate of the San Diego EDC. “From our viewpoint here in the San Diego-Tijuana region, the rhetoric we’ve been hearing is a cause for a lot of concern.”
Some companies that were exploring their options in the region have put their plans on hold, she said.
“They’re waiting to see where the chips fall before they make any kind of significant investment,” Clark said. “And that’s completely legitimate.”
Tijuana’s growth into an engineering center
DJO Global, an orthopedic company based in Vista, is one of many San Diego-area businesses with operations in Mexico. During the past several years, DJO has added hundreds of jobs on both sides of the border. Several of its executives work in Tijuana but live in San Diego.
Such collaborations have been praised because of the economic windfall felt on both sides of the border.
But if Trump plays hardball on trade, what happens to these arrangements?
DJO declined to talk about the possible effect of a Trump presidency.
“Unfortunately, we are choosing to remain quiet on this subject until we get further information,” a company spokesperson said via email.
The business relationship between Tijuana and San Diego has been evolving. Manufacturing facilities, called maquiladoras, were the first to come on the scene. These are plants that take parts and machinery made in the U.S. and use cheaper Mexican labor to complete the assembly process.
During recent years, though, Tijuana has been seeing more sophisticated manufacturing operations, thanks to an increasingly better educated workforce. For example, Mexico produces more engineers per capita than the U.S.
It’s one of the reasons that the global life sciences giant Thermo Fisher Scientific, which is headquartered in Carlsbad, recently opened its second software center in Tijuana.
It looked to India, Eastern Europe and Central Mexico but decided Tijuana was best because of its talent pool and its nearby location.
In a recent news release, the president of the Tijuana EDC, Cristina Hermosillo, noted Thermo Fisher’s importance to the Tijuana region.
“We can see the evolution of Tijuana industry from manufacturing to engineering talent center,” she said. “Tijuana aims to be California’s technological arm. More companies will follow Thermo Fisher’s example.”
But the new administration could make San Diego’s future picture quite gloomy if it makes dramatic trade decisions, Clark said. For one, U.S. companies may locate elsewhere if the border region no longer has the advantages it does today.
And companies that currently operate on both sides of the border could be affected as well, she noted. Take medical device manufacturing, she said. Right now, the San Diego-Tijuana region is home to one of the biggest such manufacturing clusters in the world.
However, it’s not out of the ordinary for parts to go back and forth multiple times before the finished product is ready for sale, she said. Indeed, this co-production has become the norm for some manufacturers.
“If new trade barriers are put up, that’s concerning for the economy,” she said.
Imagine if a manufacturer had to pay a tariff each time the product crossed the border during the manufacturing process. It wouldn’t pencil out economically.
Clark believes the argument against this trade collaboration has been distorted. For years, companies looked to locate their plants in China because labor was cheap. Today, those labor costs are rising, making that far-flung nation less attractive.
So, companies are looking at Mexico, including Tijuana. American businesses can do research and development on the U.S. side of the border and manufacturing in Mexico. The transportation costs are minimal. If a problem with the plant arises, you can visit it within hours.
So, it’s little wonder that ventures such as HardTech Labs have been created. The life-sciences business accelerator program helps San Diego startups find inexpensive manufacturing options in Tijuana. As a result, the startups are not saddled with costs that could doom their efforts in the early stages of development.
This cross-border relationship is not a job killer, Clark said. For every job created in Tijuana, a half-job is created in San Diego.
“Our economies are more integrated,” she said.
That doesn’t work if jobs go to China or India, she said. Because of the distance, that back-and-forth collaboration isn’t feasible.
Kelly Cunningham, an economist with National University System Institute for Policy Research, agrees that San Diego has seen gains from the arrangement.
“The San Diego-Tijuana region is probably one of the more benefited areas of NAFTA and multinational trade,” he said. “I argue that since those jobs were leaving California and the U.S. anyway, we benefit from jobs going to Mexico rather overseas to Asia. At least we get some of the spillover effects with jobs nearby in Tijuana.”
An estimated 66,600 jobs in San Diego directly depend on international trade and export production, he said. Thousands more people are employed as a result of related spending and other factors.
Another factor is not only the economic impact of producing and transporting the goods but also the money generated from international services and financial transactions, he said. That’s billions more.
Automation is dealing more of a blow to manufacturing, Cunningham argues.
“Labor intensive and relatively low value-add production processes are going away in any case, and (it’s) doubtful many of those jobs will ever return, or even remain,” he said. “Where San Diego thrives is the design and technical applications of high-value production, including aerospace, shipbuilding and specialized niches (such as golf clubs, surfboards).”
Cunningham believes Trump will create a more business-friendly administration, but Trump’s trade positions have Cunningham concerned.
“Bottom line — obstructing international trade, particularly with barriers to trade and protectionist actions or trade wars resulting, would significantly negatively impact San Diego,” he said.
A growing border
For the past several years, San Diego and Tijuana have been looking to make crossing the border easier and more efficient in order to take advantage of the growing cross-border economy.
Yeah, there’s a wall — a wall of traffic.
However, a number of major infrastructure projects have been undertaken to improve the situation at the crossing, one of the world’s busiest.
The San Ysidro Land Port of Entry expansion aims to increase the number of northbound lanes to 62. The first phase of the project, an improved pedestrian crossing and transit center, has been completed.
Next up is the building of a third port of entry — Otay Mesa East — which will be primarily used for commercial crossings. It’s being built two miles from the Otay Mesa Point of Entry. According to SANDAG, most commerce between the U.S. and Mexico is done via trucks.
The current Otay Mesa commercial crossing ranks third among all U.S.-Mexico border crossings in terms of the dollar value of import and export trade, according to SANDAG. Overall, the current three ports of entry are bustling.
In 2015, more than 820,000 trucks carried more than $28 billion worth of imports into the U.S. via the San Diego border crossings, according to SANDAG.
“The bidirectional trade value of $42.3 billion in 2015 was the (port of entries’) peak trade amount, which is 189 percent higher than in 1998.”
Not surprisingly, Mexico is California’s No. 1 export market.
It’s not just these facilities that strengthen economic ties. Last year, a $120 million pedestrian bridge was opened between the U.S. and Tijuana International Airport. The privately funded Cross Border Xpress allows people to go from San Diego to the airport without much hassle.
Many Americans use the airport to take advantage of cheaper flights. Airlines are already adding flights because of the addition. Many feel this shows there are ways to have safe and secure border crossings without slowing the flow, which can be costly. It’s estimated that border waits cost billions in economic loss.
It’s not just Trump who’s voiced concern about the Mexico-U.S. relationship, though. Other politicians have also been wary, said Paola Avila, vice president of international business affairs for the San Diego Regional Chamber of Commerce.
That’s why the chamber and other local business and economic agencies seek to educate leaders — particularly those who don’t live here — about the cross-border dynamic, Avila said.
“It’s been a difficult message to send to Washington,” she said. “They are so far from the border. But when they see it with their own eyes, they become our biggest cheerleaders.”
Last year, the chamber sponsored a trip to the nation’s capital to promote the cross-border economy as part of its 10th annual Mission to Washington, D.C. All the rhetoric from the campaign was causing concern.
“In this election season, it’s more important than ever to remind our nation’s leaders of the policies that are critical to business growth and economic development in the Cali-Baja region,” Jerry Sanders, the chamber’s president and CEO, said at the time.
A host of big names — both Democrats and Republicans — were part of the advocacy contingent. They included: San Diego Mayor Kevin Faulconer, City Council members David Alvarez and Mark Kersey and County Supervisors Greg Cox and Ron Roberts.
The chamber has already been aggressive in defending San Diego’s status, Avila said. For one, it has joined with other border advocacy groups — along both the Mexican and Canadian border — to collaborate on strategies.
The chamber is not against reopening NAFTA, she said. Others support that possibility as well, she noted. Indeed, some argue that NAFTA has not transformed Mexico as greatly as some thought it would.
At the time it was passed, NAFTA opponents predicted millions of U.S. jobs would move south. But a 2010 Congressional Research Service report found “the effects on the Mexican economy tended to be modest at most.”
However, the San Diego-Tijuana region is becoming an example of how a cross-border economy can flourish if trade restrictions are minimal. The geographic advantage is key, allowing products to be produced on both sides of the border.
Avila said the chamber does not want to be an obstructionist.
“We want to propose solutions,” she said. “We want to work with the new administration. If this is your agenda, OK, how do we fit in?”
This trade relationship is not limited to San Diego and other border cities, she noted. As many as 22 U.S. states have Mexico as their No. 1 trading partner.
And the U.S. is hardly alone when it comes to working with Mexico. Mexico has trade agreements with 44 nations, Avila said.
One problem is that many in California did not foresee a Trump win, she added. Indeed, the state voted heavily for Hillary Clinton.
“It was hard to gauge,” she said, of Trump support across the nation. “We don’t live in those other states.”
The biggest problem right now is the uncertainty of what the Trump administration will bring. Just what will he do?
“Business needs certainty,” Avila said. “And right now there’s a huge amount of uncertainty.”