Inside Tucson Business

As Tucson’s economy continues to struggle, growing only 1.1 percent in April, one area that shows a lot of promise is business with Mexico.

With the U.S. government slowing down spending in Arizona by $5 billion a year since 2012, exports to foreign countries have grown by close to $2 billion. 

“International export and partner trade matters in Arizona,” said George Hammond, the director and research professor at Eller’s Economic and Business Research Center. “We had $21 billion in exports in 2014. For our GDP, that’s 7 percent.”

And much of those exports went to Mexico. While much of the economy is struggling behind the national average, exports are the biggest exception.

“Last year, we saw a huge increase in our internal exports,” Hammond said. “They were up 9 percent, which is triple the national average.”

Roberto Coronado, assistant vice president and senior economist at the Federal Reserve Bank of Dallas-El Paso branch, said the United States and Mexico are linked in many ways, not just because of their common border.

He said since NAFTA was approved, the countries have become strong trade partners, and as a result, their economies closely mirror each other. 

“Eighty percent of Mexico’s exports come to the United States, and 33 percent of its economy is from exports,” Coronado said. “Oil exports have taken a huge hit. Everyone expects Mexico to grow around 3 percent this year. 

“By 2017, perhaps Mexico will grow 4 percent.”

Coronado said Mexico has taken several steps to improve its economy over the last two decades. A big step came in 1994 when Mexico made its central bank independent.

“The central bank independence has really paid off,” Coronado said. “Before the independence, the inflation rate was 38 percent. After the independence, it fell to 9.8 percent and is now down to 4.2 percent.”

Mexico has also cut the rate its national debt has grown, trimming it to 3 percent, half of the United States’.

In 2012, Mexico implemented aggressive reform to improve the growth of its economy. From 2010 to 2012, Mexico’s economy grew from 3 to 5 percent a year. Since 2013, the growth has been less than 2 percent. The downturn in oil prices has really hurt Mexico’s economy.

While energy and construction exports have slowed, services and manufacturing have improved. And most of the exports came to the United States.

In 2014, the two countries had $540 billion in trade, or the equivalent of $1 million a minute.

And for Arizona, increased trade is a big part of the state’s economy.

“Mexico is the No. 1 trade partner with three of the four border states,” Coronado said. “Forty percent of Arizona’s exports go south to Mexico, and that is $8.6 billion a year.”

Most of the state’s exports, $11.5 billion, come from Phoenix, but Tucson is second in the state with $2.5 billion in exports.