'People Don't Realize How Huge It Is': Trade With Mexico A Growing Tailwind For Texas Industrial

Texas’ neighbor to the south is playing an increasingly pivotal role in the success of industrial markets located hundreds of miles from the border.

The economic relationship between Texas and Mexico has blossomed in recent years as border trade accelerates and manufacturers move operations closer to the U.S. The partnership not only benefits both countries, but it positions Dallas-Fort Worth, some 400 miles north of Mexico, in the direct path of distribution, cementing its reputation as a critical point in the global supply chain.

All of the pieces are in place to ensure North Texas benefits from Mexico’s significance as a U.S. trade ally — so long as the state’s tough stance on immigration doesn’t get in the way.

“Texas and its position with respect to Mexico makes it a player on the American stage but also on the world stage,” International Capital Partners CEO Agustín Barrios Gómez said. “I wouldn’t underestimate the size of that impact already, but we are just getting going for the next chapter.” 

Despite a slowdown in leasing, DFW remains one of the strongest industrial sectors in the nation. The Metroplex led the U.S. in development activity throughout 2022, with JLL data showing construction peaking at 66.7M SF in the first quarter of this year. More than 12M SF of new space was completed in the third quarter and another 58.4M SF is on the horizon.

A chunk of that demand is coming from foreign manufacturers setting up shop in Mexico. From there, companies need distribution paths into the U.S., and DFW is a logical stop along the way, Colliers Senior Vice President Allyson Yost said.

“Any increase in Mexico seems to be an increase in Dallas,” she said. “We are going to be a stop within the United States, either going in or going out.”

U.S. companies also want to leverage production capabilities in Mexico, which has led some to set up shop in Texas to ensure efficient distribution, according to a report by JLL. Numerous furniture companies are moving into the state as a result, though the names of tenants could not be disclosed due to active negotiations, a JLL spokesperson told Bisnow.

IT services firm Softtek is one firm that relocated to Texas in order to be closer to Mexico. The Monterrey, Mexico-based company first started its U.S. operations in Atlanta, then moved to Dallas by way of Miami in July.

“We established a model where we leverage all the advantages of proximity,” Beni Lopez, CEO of Softtek for the U.S. and Canada, told the Dallas Fed. “It’s a 90-minute flight to our headquarters and delivery centers in Monterrey from Dallas, or two-and-a-half hours to Mexico City or to our clients anywhere in the U.S.”

Softtek leveraged all the advantages of commercial proximity and intellectual property laws embedded in the United States-Mexico-Canada Agreement, which was a turning point for trade relations between the three North American countries upon its passage in 2020. 

The legislation — which replaced the North American Free Trade Agreement — reduced tariffs and streamlined customs procedures, which boosted trade and created jobs on both sides of the border.

“There is more trade between Mexico and Texas than all of the trade that takes place among every single other country in Latin America with the entire world,” Barrios Gómez said. “People don’t realize how huge it is.” 

The trade relationship between the U.S. and Mexico began with NAFTA in the early 1990s, but it took on an urgency during the pandemic because of the decoupling from China, Gómez said. 

“Covid showed how geographically dispersed supply chains outside of your region could very easily collapse,” he said. “This idea that you had to get efficiency at all costs and put manufacturing wherever it was cheapest came to an end when supply chains snarled up.”  

Two-way trade in goods and services between the U.S. and Mexico totaled $863B in 2022, a volume that directly and indirectly supports millions of U.S. jobs. In Texas alone, the trade industry employs more than 400,000 people and contributes more than 10% of the state’s gross domestic product, according to a report by Partners Real Estate.

In the first four months of this year, Mexico edged to the front of the pack in terms of global trade, accounting for 15.4% of goods exported and imported by the U.S. Trade totals with Canada and China accounted for 15.2% and 12%, respectively.

Around the same time as the passage of the USMCA, manufacturers mired in supply chain disruptions and bogged down by Trump-era tariffs began to leave China in droves, opting to bring their business closer to the end consumer. 

The phenomenon — known as nearshoring — caused imports from Mexico to skyrocket. In 2022 alone, DFW imported over $100B in goods from Mexico, making it the region's largest trading partner, according to Partners.

The effects of the USMCA paired with the rise of nearshoring led to spiking demand for industrial facilities along the U.S.-Mexico border where space is now scarce.

But infrastructure constraints coupled with extremely low vacancy rates led some companies to head for more developed regions, including DFW, said Trevor Heaney, principal at ARCO/Murray Design Build.

“They did not have the capacity for the growth that was happening,” Heaney said of Texas’ border markets. “Folks looked further and further north to more mature markets where there was some vacancy.” 

Eighty-five percent of goods made in Mexico cross a land border either by train or truck, which puts DFW in a strategic position to reap the benefits of manufacturing south of the border. 

“The benefits of our location in proximity to Mexico, and then the proximity of Dallas to anywhere in the United States … it helps,” Yost said. “There’s a whole lot of positives for why Dallas is such a play in the industrial sector.” 

Proximity isn’t the only benefit of increased Mexican trade. The country also has a skilled and competitive workforce, lower labor costs than China and a younger population, all of which add to its appeal, Barrios Gómez said.

A less obvious advantage, he added, is rooted in homeland security. More opportunities in Mexico could lead to less crime and, in turn, fewer undocumented immigrants into the U.S.

“Given the position of the United States vis-a-vis the rest of the world and the geopolitical challenges that it faces, it’s very, very important for the U.S. to make sure its southern border and its northern border are strong, wealthy and stable,” Barrios Gómez said.

But Texas’ migrant policies have already stifled trade activity. Officials from both nations pleaded with Gov. Greg Abbott earlier this fall to end state-run cargo-truck inspections after $1.5B in goods became stranded at the Mexico border due to long wait times, according to a report from Freight Waves.

Barrios Gómez said those types of activities may “score political points,” but short-term wins could come at the expense of long-term economic success.

“If a government of any kind acts against the flow of trade, the goose with the golden eggs could certainly be impacted,” he said.

The outcome of next year’s presidential election combined with the possibility of a recession could impact the momentum of trade between the U.S. and Mexico. But the idea that success in Mexico translates to success north of the border is likely to persist.

“If Mexico really is to achieve its full potential with respect to integrated supply chains in North America, and if China really does sort of remove itself from the equation going forward, then the sky's the limit,” Barrios Gómez said.