As anyone playing the strategic board game “Risk” can attest, geographical advantages have a way of turning into disadvantages if they’re not leveraged properly.
San Diego’s perch on the Pacific Rim is expected to benefit the region’s economy greatly if President-elect Donald Trump follows through on his pledge to build up the U.S. Navy. But if he torpedoes the North American Free Trade Agreement, as some fear, the area’s dependence on trade with neighboring Baja California could prove a big liability.
Few have a stronger grasp on this dynamic than Paola Avila, vice president of international business affairs and leadership development at the San Diego Regional Chamber of Commerce. A former economics student at the University of California, San Diego, Avila has studied international business and worked in public policy advocacy.
In an interview with the San Diego Business Journal, Avila explained what local businesses are doing to strengthen the U.S.-Mexico trade relationship through cooperation and communication.
Q: How big an impact to the San Diego area’s economy might we be looking at with regard to the president-elect’s plan to revisit international trade policy?
A: San Diego stands to gain or lose more than any other region in the U.S. Mexico is the U.S.’s No. 3 trading partner and export market, but for San Diego, it’s No. 1. We export $5.5 billion per year to Mexico. That’s San Diego alone. Our No. 2 export market is Japan, and it comes in at $304 million. That’s a huge gap. In that export market, the top sectors are electronics, automotive parts, computers, medical devices and military — defense and aircraft.
Fair Trade Focus
Q: What do you see as the best- and worst-case scenarios here, under the president-elect?
A: I don’t think there’s anyone who disagrees that NAFTA needs to be updated. But there’s a difference between exiting NAFTA and updating NAFTA. Best-case scenario is we update NAFTA to enhance commerce. It’s a 20-year-old agreement. We update in terms of e-commerce and intellectual property protections. E-commerce didn’t exist 20 years ago. Also, enforcement and environmental labor protections: We need to enforce the provisions within a trade agreement, and focus on fair trade. We talk a lot about free trade, but I think the focus should be fair trade.
And then we need to invest in border infrastructure. Our border infrastructure has not kept up with the increase in trade that we have seen. That becomes an impediment to the growth of our economy. That was never part of NAFTA in the past. Perhaps we get a commitment from Mexico on funding border infrastructure or aligning with the project that we’ve been doing.
Then, the last thing I’ll mention is job training. A big part of the criticism on trade is that jobs move out of the U.S. That’s debatable and we can argue that. However, let’s address potential job loss and invest in job training instead of talking about tariffs. How about mandating if you’re going to open a new manufacturing plant in Mexico, for example, you need to contribute a certain amount or percentage into a fund we’re going to create for job training? What a win that could be for the president-elect.
Worst-case scenario is retaliation. Mexico could say, ‘We’ve been importing your agricultural products and it’s affected our farmers. They’ve gone out of work. So we’re now going to start imposing huge tariffs on the tomatoes you export.’ That’s going to be a problem. There are hundreds of Mexican companies that have established in the U.S. and San Diego. They will get a lot of pressure from the public to freeze that investment, to exit the U.S. or cease that investment.
Another, if you impact Mexico’s economy adversely, what is going to happen to the immigration that you’re trying to stop? We have actually seen illegal immigration drop tremendously. That’s due in large part to Mexico’s economic growth. If you adversely impact Mexico’s economic policies, you’re going to see more people knocking at the door.
Q: What are businesses here doing to make the case that free trade benefits U.S. businesses?
A: I’ll say that businesses are engaging and they’re vocal. We’re getting actual testimonies from companies saying, ‘Let me share my story with you.’ Now we need to make our case it’s not political or adversarial. It’s, ‘Let’s get involved. Let’s work with the administration. What can we do?’
Q: Are they making plans to reach out to the new administration?
A: We do our annual trips to Washington, D.C., and Mexico City. The D.C. trip isn’t until the fall. We’re getting tons of communication saying that this trip is more important now than ever. Maybe we should add another trip beforehand. Mexico City is really important, as well. We also have formed this group called OneBorder. It’s a coalition composed of private-sector organizations from San Diego/Tijuana to Matamoros. We have a meeting coming up the end of this month. Right now, we take a group of 150 from the region. What if we multiply that and it’s not just San Diego/Tijuana, but the entire U.S.-Mexico border region going together?
Q: Can you tell us a little bit more about the strategy that you hope to take to Washington?
A: I think it’s just a very concise message. We’re not going with 20 asks. We’re very focused on three main ones. It’s NAFTA. It’s investment in border infrastructure. The president-elect has talked about infrastructure being one of his main priorities. Well, the investment in border infrastructure can certainly help that. That can help address some of his other goals, including border security and job creation, for example. And then, third, promotion of the U.S.-Mexico relationship in general.
Q: What are your contacts in the Mexican government, or the business community there, saying with regard to Trump and his statements on trade?
A: I think you see them mobilizing, strategizing. They’re going to act in the best interest of Mexico. You saw (in January) that the president of Mexico made a major cabinet switch. He brought back (former finance minister) Luis Videgaray, who was the one who orchestrated the Trump and (Mexican President Enrique) Pena Nieto meeting. He is back as his cabinet secretary again for foreign relations, and is expected to be the main point person for Mexico on the NAFTA conversation. We shouldn’t expect Mexico to just roll over. So let’s be smart about how we enter that NAFTA renegotiation and conversation.
Q: Given the benefits of a possible military buildup and what that might offer the region, do you expect a somewhat confrontational stance with the White House, a cooperative approach or something else?
A: I would hope cooperative. We have a lot in common. San Diego is known as a Republican town, a military town. There are a lot of connections with D.C. It’s certainly a strong relationship. I would say we have two congressional representatives in Washington who are Republican and have strong ties with the president-elect, so I would hope it would work collaboratively. There’s no reason why it shouldn’t be.
Trade: the Big Picture
Q: What more should be done within the local business community, in your opinion, with regard to reaching out to make the case on NAFTA?
A: A lot. The job loss that was suffered in recent years in the automotive industry, for example, we hear that very loudly and very often, right?
But that’s not the whole story. So what business needs to do is to tell the other story, and be very active and engaged, either through our chamber or another business organization or on their own. Because in the absence of that, you miss a big part of it.
It’s very limiting to just talk about the job losses in the automotive industry without looking at the gains. What have we grown and the jobs we have retained, not just here, but in Michigan, for example, the jobs that were kept because of trade?
The business community needs to do a better job of telling that story. I don’t know if they communicate that to their employees. Your job actually depends on trade. How many companies actually communicate that to their employees? I think very few understand how trade will impact their job and their job security in the future.
We’re producing with Mexico. We’re not just trading. Assembly may be done 20 miles south of here, but they’re assembling our product that, thanks to NAFTA, crosses the border without tariffs. It’s put together there and brought back here. When you call it an import, it’s actually an import with 40 percent U.S. content. So we’re importing our own goods, which is a good thing. It’s been beneficial to the company, it’s lowered costs, it’s increased production and created jobs.