Texas and Trade

Writing this early on Thanksgiving morning, roasting turkey that we will have with pumpkin and pecan pies, I think of trade. Turkey, pumpkin, pecan and corn, we will have that as well, were food items that were introduced to the Pilgrims in 1621 by the Wampanoag tribe that was indigenous to the Massachusetts Bay where the Mayflower had landed. This harvest observance became a national tradition in 1789 with George Washington’s declaration.

The harvest tradition reminds one of foods then trade that accompanied what in time became the United States. During the coming decades from the 1600’s most trade was among the regions of the United States not international. Two significant exceptions were the international trades of cotton and people. The South was an area of exceptional cotton growing conditions and the cotton was sought by textile mills in England and later New England. Gathering cotton was very labor intensive and by the early 1800’s that labor was significantly done by slaves. Most came from West and Central Africa, initially captured by West Africans and sold into slave markets in Africa, and then in North and South America.

American Colossus

After the Civil War with the exceptions of smaller conflicts within the Caribbean and Mexico, American engagement with the larger world was limited as the country was absorbed with national development. Factory manufacturing emerged in northern states like Michigan, Ohio and Illinois. Intensive agriculture in the Midwest, south and west including Texas and California, created national markets. Detroit, Cleveland and Chicago became known for auto and electronic manufacturing, Ft. Worth for cattle stock yards, Kansas City also for cattle and grains, the Central Valley in California for fresh fruits, vegetables and nuts, Idaho for potatoes, Orlando, Florida for oranges and grapefruit and followed by the Rio Grande Valley’s citrus and onions.

During the 20^th Century the United States grew to the most prosperous nation in the world by internal trade and then supplying goods to England and Europe during WWI and WWII. There was little relative American engagement in WWI but more in WWII, but with European and then Japanese economies decimated including the destruction of factories, roads and farms, wealth flowed to America.

Foreign Challengers

That flow began to ebb by 1970 and by 1980 American manufacturing was facing brutal competition from much of the world. Initially it was “knock off” products such as consumer electronics that illegally copied American patents and designs but used far less expensive labor. However with the OPEC embargo of the 1980’s, more fuel-efficient and better-designed Japanese auto imports gained a foothold. Even the ancient pre-WWII design of the VW “bug”, became a favorite because of its low price and superior gasoline mileage. The Volkswagon then led a wave of German imports from Mercedes and BMW that featured more sophisticated engineering and design than the American companies: General Motors, Ford and Chrysler. The result was that American manufacturers had their backs to the wall with cheaper and in some cases superior imports.

As American manufacturers lost ground to Asian and European imports of cars, appliances, steel, clothing and some food items, a notion of comparative advantage took hold in American thinking. Learning from the Asians, mainly the Japanese and Europe, proposals were made to leverage the unique advantages of countries in North America to increase success in world trade including winning back American markets.

Free Trade To Make America Competitive

These were the comparative advantages for the countries of North America: Canada-natural resources; United States-manufacturing and engineering prowess and higher education; Mexico-low cost labor. This was the core of NAFTA and was achieved by lowering export-import rules and tariffs of products made in one of these countries when exported to the other. There was strong political resistance to NAFTA with the states of greatest manufacturing dominance and heavy union membership opposed. President GHW Bush did not succeed in passing the legislation but his successor, President Clinton, did.

The free trade legislation was a boon for growth and prosperity for cities in northern Mexico as first American and then Japanese, German and Korean companies located assembly facilities using lower cost (@50 cents an hour) labor and proximity to the American markets. Juarez was a clear example doubling in population each decade but by 1995 Mexico’s industrial giant, Monterrey began to boom eclipsing Juarez in many ways, though 140 miles south of Laredo or 150 miles from McAllen, but with well-maintained highways and train lines provided ready access to Texas and then to all of the U.S. and Canada.

Stepping Back From Globalization

By 2016 expanding trade as we trace it back to 1621 had begun to change. Early indicators are textile manufacturers moving from low cost regions like Mexico and Central America or Southeast Asia back to American cities near where cotton is grown such as South Carolina and Georgia. These are southern towns that benefited from textiles leaving New England in the 60’s for cheaper non-union Southern labor and proximity to where cotton is grown. The movement back to the United States is growing at rapid rates as the advantages of being near both the raw material and the consumer markets outweigh the higher cost of labor.

Substituting Technology for Labor

But there is another item in the equation and that is these returning manufacturers use technology that only requires 1/10^th or less of the labor as that needed before the movement to foreign sites began! The process of substituting artificial intelligence and robotics is accelerating across the United States. Textiles are a clear example but at the level of the consumer it can be seen by self-check out at Walmart and credit card purchases at McDonalds or Starbucks eliminating cashiers and thus human labor.

Another change is a shift away in the political dynamics of the 1990’s that created the push to free trade. The shift is clearest in states like Illinois, Ohio, Michigan and Pennsylvania that reliably voted Democratic but gave majorities to the Republicans in 2016 securing the election for Donald Trump. What politicians missed were the economic disasters of Chicago, Detroit, Cleveland and other cities formerly prosperous from manufacturing now with high levels of unemployment, crime and bankruptcy.

A related change is movement away from large scale political centralization that created groupings like the Common Market from highly independent states like Germany, England, France, Spain and others that united after WWII in an open market without trade, currency and travel barriers. Such centralization reached a peak at the end of the 20^th Century. The movement away is most clear with Great Britain’s exit from the Common Market (Brexit). Other independence movements are developing in Spain, Germany and France as well as in NAFTA.

As trade moves away from globalization and toward local production and control, countries that were the greatest beneficiaries are now in disarray. For Texans that is visible and threatening in Mexico. It is not just economic growth that is slowing in Mexico but also belief in the ability of the Mexican state to protect and enrich lives. Lack of confidence in the state and the level of violence this year is the highest since the end of the Mexican Revolution in 1929. Mexico by the end of October recorded 20,878 murders and the projected number at the end of December is 23,000.

As automation proceeds, the need for low-cost Mexican labor will decline. There will be initially two consequences. One will be that more Mexicans will try to join the stream of persons from Central America seeking to escape to the United States. The second is further disintegration of the Mexican State with the 5 or 6 large Cartels metastasizing into smaller and more violent groups. As long as a drug market exists in the United States, the fuel that feeds the Mexican Cartels will continue. Pressure on public safety will occur first along the Mexican border with hot spots at El Paso, Presidio, Eagle Pass, McAllen and Brownsville. These are the fundamental and long-term challenges to public safety first in Texas and then to all of the United States.

La Bestia near northern Guatemala