Ahead of a possible Trump wall, a look at one US border town

Donald Trump wants to deport millions of immigrants and erect a wall, funded by Mexico, along the southern border.

But people have been doing cross-border trade for decades along the Rio Grande River in the Southwest. And if there were such a wall, what would happen to local U.S. economies just north of Mexico?

For some insight, the McAllen, Texas region is a good place to start, with an area population of roughly 831,000 and growing. McAllen's economic fate is tethered to the Mexican city of Reynosa to the south.

A maquila economy

We live here on the border. We have friends and families on both sides.
Keith Patridge
McAllen Economic Development Corporation
U.S. Border Patrol boat patrols along the Rio Grande (Mexico on left, U.S. on right) near McAllen, Texas.
Getty Images

The maquiladoras — or maquilas, for short — are Mexico-based factories that are run by foreign companies, enjoy tax breaks and produce and export goods, a legacy of the North American Free Trade Agreement. The first maquilas were established decades ago and have become fixtures in the border economy. The factories create export revenue and jobs. Workers in Mexico in turn travel north to McAllen to shop and access goods and services including health care.

The McAllen region, in fact, boasts five hospitals and a high birthrate. Young parents mingle with "winter Texans," mostly seniors who swoop in for warmer weather and spend millions a year locally.

Some other facts about McAllen and the local economy:

  • Every increment of 10 percent growth in maquila-related economic activity in Reynosa leads to 6.6 percent total employment in McAllen, according to the Federal Reserve Bank of Dallas.
  • With its steady stream of visitors flowing from Mexico, McAllen wasn't hit as hard by the Great Recession. As the U.S. economy retreated, shoppers from Mexico kept coming and spending.
  • Roughly 200 global companies have some footprint in the McAllen-Reynosa region. With over 120,000 manufacturing jobs, workers make computer chips, telecom components, motor boats, bowling balls, medical equipment and more.
  • Given the proximity to Mexico, McAllen is also a major gateway for agricultural products entering the U.S. on trucks.

Between McAllen and Reynosa, "We are one city that happens to have a river running through it, not much different than most communities," said Keith Patridge, president and chief executive of the McAllen Economic Development Corporation.

"It's just that our river, you have to cross through immigration and customs every time you go back and forth," Patridge said. "But it doesn't stop the flow of families. It doesn't stop the flow of commerce."

And portions of McAllen already feature a fence.

In 2006, President George W. Bush signed the Secure Fence Act, which mandated the construction of 670 miles of fence along the U.S.-Mexico border including McAllen. The fence is laid out in unconnected segments of varying miles.

"Everybody is talking about, 'You gotta build a wall.' Bottom line, we've just adapted," said Patridge. "We live here on the border. We have friends and families on both sides."

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McAllen's roots can be traced to a private ranch in the late 19th century. In 1916, President Woodrow Wilson deployed 20,000 soldiers from New York to help quell border disturbances, and the region began to grow.

The city today runs primarily on three major clusters — the government, health services and retail trade. And more than 91 percent of McAllen's population is Hispanic, according to Dallas Fed data.

McAllen's median age is 29.2, nearly five years less than the state, according to Fed data. And many young families are having babies. The local population has been growing 3.1 percent on an annualized basis.

Keith Patridge is president and chief executive of the McAllen Economic Development Corporation.
Source: McAllen Economic Development Corporation

And babies mean hospitals. Nearly 19 percent of McAllen's workers are in the health-care industry. The local joke goes, "Don't drink the water."

Those children go to school. Some 58 percent of all city government employees work for elementary and secondary schools. Government workers in total make up the largest share of McAllen's workforce at nearly 23 percent.

Another key driver is shopping, including retail tourism.

Retail trade employs more than 15 percent of McAllen's workers. La Plaza Mall in McAllen is a big draw in the Rio Grande Valley. Shoppers come from as far as Monterrey, Mexico's third-largest metro area, which is 150 miles southwest of McAllen.

"About one-third of McAllen's retail activity can be attributed to Mexican shoppers," said Roberto Coronado, senior economist at the El Paso branch of the Federal Reserve Bank of Dallas.

Adding to the population mix are seasonal residents from midwestern states and Canada, with an average age of 71. These winter Texans spent nearly $710 million locally in 2014, according to Fed data. Their household spending is up nearly 35 percent since 2006.

The larger point is that McAllen's economy has expanded and diversified to embed itself in many populations and economies in the U.S. and Mexico.

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But this is an election year. And immigrants and border towns can be explosive issues not lost on Trump. Hereached a delegate majority for the Republican nomination last week, and has made his wall idea a cornerstone of his campaign.

And yes, you can argue manufacturing jobs in Mexico should be anchored in the U.S. in the first place.

But even noneconomists know manufacturing plants and jobs chase cheap labor around the globe. There's no geographic loyalty.

Jobs and NAFTA

And even the trajectory of McAllen and the region haven't been bump-free.

Maquilas in Mexico have also lost some work over the years to cheaper labor in Asia, including China. More recently as wages in China have risen, some economists see some "near shoring" of work back to Mexico that would allow manufacturers to save on transportation costs, given the shorter distance to U.S. markets.

The broader context is the North American Free Trade Agreement.

NAFTA, which went into force in 1994, scrapped many tariffs between the U.S., Canada and Mexico. Critics from both the right and the left charge the agreement has hurt manufacturers, reduced jobs and eroded labor conditions.

But in this political vortex, scrappy McAllen has proven it can not only survive — but thrive amid the ebbs and flows of the global economy. McAllen unemployment in the 1980s, pre-NAFTA, was some 28 percent. Unemployment now is around 4.6 percent.

Companies in McAllen-Reynosa are "buying components, products from the U.S. side, which means that they are supporting jobs in McAllen and in the U.S.," says Patridge.

Other Texas border cities including El Paso, Laredo and Brownsville exhibit similar economic integration with manufacturing activity in northern Mexico, says Coronado.

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So as Trump stumps for his wall, border town economies keep churning.

Added Patridge, "In an election year, we're the political pawns here on the border."