COMMENTARY:
Mexico’s maquiladora (twin plant) industry was founded in 1965 in order to take advantage of changes in the U.S. tariff code. U.S. manufacturers were complaining in the early 1960’s that Japanese manufacturers were beginning to dominate markets because of cheap labor and strong government support. Many U.S. manufacturers wanted to take advantage of more economical labor throughout the world, while still maintaining production of a portion of their products in the U.S. However, U.S. tariff code at the time mandated that if a tariff on a foreign-produced good was in place, it applied to 100 percent of the value of the product, regardless if a percentage of the product was made in the U.S. but assembled abroad.
In order to help keep U.S. companies competitive, the U.S. government changed its tariff code to allow the U.S. content in an imported product to be excluded from tariffs. Thus, the Mexican government, wishing to industrialize its border regions and to create badly needed jobs, created its maquiladora industry, which allowed Mexico to assemble products made out of foreign components/materials (predominantly U.S.) using Mexican labor. When these products were exported to the U.S., tariffs only applied to the value of the Mexican labor on the product.
U.S. companies, wanting to compete with their Japanese and European counterparts, quickly established plants in border cities such as Juarez. The maquiladora industry became known as the twin-plant industry, since firms had plants in both the U.S. and Mexico.
Later, under the North American Free Trade Agreement and the U.S.-Mexico-Canada-Agreement, tariffs were based on the amount of North American content in a particular product. For example, if an automotive component requires 75 percent North American content and it complies with this rule, in most cases it can be exported to the U.S. from Mexico with zero duty. If it falls below the 75 percent requirement, the product could be subject to whatever tariff exists on this type of U.S. import.
For the last 60 years, Mexico’s maquiladora industry (now officially referred to as its IMMEX program, although the term maquiladora or maquila is still commonly used) has been a major element of Mexico’s economy and the biggest driver of its exports. In the Borderplex region (El Paso-Juarez-southern New Mexico), the maquiladora industry has attracted billions of dollars of investment in the form of companies establishing operations not only in Juarez, but in El Paso, Texas, and Santa Teresa, New Mexico. It also has created millions of jobs, when the entire supply chain is examined. The maquiladora industry has helped lift many Mexicans into the middle class, and industrialized and modernized Mexican border cities. This industry has deepened the trade ties between the U.S. and Mexico, and with Canada, helped create a North American trade bloc.
Companies on the U.S. side of the border are supplying Mexican maquiladoras with raw materials and components for assembly, or they are receiving finished products from Mexico into U.S. distribution centers which send them throughout the world. So many products that we consume in the U.S. are produced in Juarez, such as auto components, computers, consumer electronics, and even food. The Borderplex is now the fifth largest industrial base in North America.
In the Borderplex, I always tell people that “Juarez is the dog, and we on the U.S. side are the tail.” If the Juarez maquiladora industry is healthy, we are healthy on the U.S. side. The opposite also applies. That is why I have been following with consternation the fact that during the past two years, the Juarez maquiladora industry has lost approximately 65,000 jobs. The Mexican Association of Importers and Exporters recently announced that it had lost 20,993 jobs through August compared to 2024. Total employment in Juarez’s maquiladora industry now stands at 261,443 jobs through August, down from nearly 330,000 jobs two years ago.
It is generally acknowledged that jobs are being lost due to three factors. First is the uncertain business environment caused by the threat of tariffs against Mexico and Canada by the Trump Administration. Businesses are reluctant to expand their production and workforce, not knowing what is going to happen with tariffs in the future. Second is the fact that the minimum wage has been raised in border cities such as Juarez. This decreases Mexican border cities’ competitiveness compared to Mexican interior cities such as Queretaro. It can also make Juarez less competitive compared to production bases in countries such as Vietnam.
Third is the increasing use of automation in production plants in Juarez. More plants are being built or retooled using high-tech production equipment that requires less labor.
However, if employment in Juarez is contracting, but productivity goes up, this is not such a bad thing, as it bodes well for the region’s competitiveness. This is yet to be seen over a longer period of time. On the other hand, thousands of workers will need to find jobs in other areas.
I have always said that the border is a harbinger of what is going to happen in the U.S. economy. We have a ringside seat to economic trends before they hit the overall U.S. economy. If cross-border trade and production go soft, the U.S. economy is most likely headed for a slowdown. What is going on in Juarez’s maquiladora industry is important to us because so many jobs on the U.S. side of the border depend on what is going on there. This is why we must carefully follow what is happening with the loss of jobs in this industry.
Jerry Pacheco is the president of the Border Industrial Association.
Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.