How Closing the Southern Border Would Slam the U.S. Economy

Author: JOHN G. MURPHY
Senior Vice President for International Policy
Source: Chamber of Commerce of the United States of America

There’s no way to sugarcoat it: “Closing the U.S.-Mexico border would inflict severe economic harm on American families, workers, farmers, and manufacturers,” as Neil Bradley, the Chamber’s executive vice president and chief policy officer told the press earlier this week.

The U.S. Chamber of Commerce shares the administration’s concerns over the influx of migrants seeking to enter our country along our southern border. We are firmly committed to new measures to secure the border and fix our broken immigration system.

However, we are firmly opposed to closing the border. Let’s look at the facts.

How much trade goes across the U.S.-Mexico border?

U.S. goods and services trade with Mexico reached $678 billion last year or $1.85 billion per day, according to the U.S. Department of Commerce.

An estimated $502 billion in goods — about $1.4 billion a day — crossed the border via trucks and trains last year, according to the Commerce Department.

Can we estimate the cost of a border closure to the economy?

It would likely be in the tens of billions of dollars per day — certainly much more than the $1.4 billion in daily U.S.-Mexico merchandise trade.

Why would this be the case? Today’s lean manufacturers keep costs down by using just-in-time delivery for many parts and components. In this context, the delay of a few million dollars’ worth of inputs can force a shutdown of an assembly plant or other major manufacturing facility whose total output is orders of magnitude greater in dollar terms than the goods held up at the border.

A range of other products — such as fresh produce — would face immediate losses as merchandise piles up at the border. Some of this cargo would have to be written off as a total loss.

How would it hit the U.S. auto sector?

Autos and auto parts make up about one-quarter of U.S.-Mexico trade, so this industry is at the heart of these concerns.

U.S. auto plants would be expected to close one day for every day the border is closed. Due to the nature of each plant’s supply chain and the volume of parts they have stockpiled, some plants would likely shut down sooner than others; but in the end, each day the border is closed equates to a one-day plant shutdown. The fixed costs of operating these plants would be losses that cannot be recovered.

According to the Center for Automotive Research (CAR), every hour a U.S. auto plant is shutdown would cost about $1.2 million – $1.3 million. Taking into account the number of hours an auto assembly plant is normally run (20 hours per day) and the number of U.S. auto assembly plant model lines (more than 50), the overall cost of a total U.S. auto assembly shutdown is about $1.3 billion a day.

Given that the auto assembly portion of the U.S. auto industry’s is only a fraction of the total industry, the ripple effect on the rest of the auto industry would be at least 4-times that of the assembly plants – or about $4 billion per day. All told, it adds up to at least $5.3 billion a day in additional costs to the entire U.S. auto industry. And that’s just one industry.

Many of the 48 ports of entry on the U.S.-Mexico border are now experiencing substantial slowdowns as Customs and Border Protection staff have been reassigned and as industry has hurried to move goods across the border ahead of a threatened closure. These delays have direct costs for manufacturers, and they are already accumulating.

Has the border ever been closed before? What happened then?

The U.S. borders with Mexico and Canada were not closed after the 9/11 attacks, but the United States did implement a “Level 1 Alert” under which customs officers physically searched all vehicles before allowing them to enter the United States. According to testimony by the Stephen E. Flynn of the Council for Foreign Relations in 2004, the impact was severe:

Within a day [after the 9/11 attacks] there was a 16-hour queue at the major border crossings in Michigan and New York. By September 13, Daimler-Chrysler announced they would have to close an assembling plant on the following day because their supplies were stuck on the north side of the border. On September 14, Ford announced they would be closing 5 plants the following week.

That all happened in three days — and this followed from long delays, not a border closure.

How might other industries be affected?

Lance Jungmeyer, President of the Fresh Produce Association of the Americas, explains that U.S. consumers are incredibly reliant on imports of produce from Mexico this time of year. “Because most of the U.S. is out of season, with risk of frost in most parts of the U.S., there is very little supply or chance for the U.S. to fill this market gap,” he explains.

Citing USDA data, Jungmeyer points out that U.S. consumers currently rely on Mexico to provide 82% of cucumbers, 71% of eggplant, 62% of bell peppers, 62% of cherry tomatoes, and 70% of seedless watermelons. These data are for April 2018.

Railroads, an industry that depends on international trade for 35% of revenue, would be impacted significantly. The Association of American Railroads estimates that 50,000 rail jobs depend directly on international trade.

The Plastics Industry Association concurs. “Even a temporary closure of the U.S.-Mexico border will harm the economic well-being of the plastics industry here in the U.S. and in Mexico, jeopardizing operations and putting the jobs of plastics workers at risk,” said Patty Long, the association’s CEO. The industry’s exports to Mexico topped $28 billion in 2018.

Many other sectors are in the same situation.

What if the border is closed but commercial traffic is allowed to continue?

It’s not clear how closing the border to all but “commercial traffic” would work legally or logistically.

The U.S.-Mexico border is the most frequently crossed border in the world. Nearly half a million people legally cross the southern border every day as workers, students, tourists, and shoppers. It’s unclear if their movements would be blocked under such a proposal.

More to the point, closing the U.S.-Mexico border to legal travelers and cargo that fall outside of goods on trains and trucks would do nothing to address concerns relating to the recent increase in border crossings by Central Americans.

How else would border communities and states be affected?

Border cities and towns depend on cross-border commerce in many ways. Many U.S. stores depend on Mexican shoppers. In McAllen, TX, for example, “Mexican shoppers make up nearly one-third of the roughly $3.2 billion worth of retail sales the city records annually,” reports The New York Times.

Many schools in border communities serve border-crossing students. In El Paso, TX, administrators with Father Yermo Catholic School confirm “about 40 percent of the school’s population crosses the border everyday from Mexico,” according to ABC-7 KVIA.

“The closing of the U.S.-Mexico Border would be economically devastating to Texas,” wrote the Texas Association of Business, which serves as the state chamber of commerce. “The Lone Star state is dependent on trade; it is our lifeblood. If you want to create an economic crisis, then shutting down the border will create a financial crisis.”

The view from Arizona — a likely 2020 electoral battleground — is also dire. “A closure of the U.S.-Mexico border would be an economic catastrophe,” wrote Arizona Chamber of Commerce and Industry President and CEO Glenn Hamer. “It would put an end to any chance for the administration to stay on course for its stated goal of 3%-plus growth.”

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