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A California Story: How Manufacturing in the CaliBaja Mega Region Highlights the Success of NAFTA/USMCA

California has the fifth largest economy in the world. Putting aside the beaches and postcard-worthy vacation photos, California makes things for the U.S. and the world. And it doesn’t do it alone.

Enter what has now been coined the CaliBaja Mega Region. On this side of the nation, the border fence made of Vietnam-era steel landing strips disappears. A phone is picked up in Corona, California and a call is made to arrange training on a new product build at a sister manufacturing plant in Tijuana, Baja California. An executive from Irvine flies to San Diego and walks across the Otay Mesa Crossborder Xpress international bridge to the Tijuana airport. A line of trucks queue at the Otay Mesa Port of Entry carrying airplane turbines that include both U.S. and Mexico made materials, all bound for Long Beach. A high-tech medical lab in Tecate, Baja California does final packing of the most well-known pregnancy test in the United States. This is a day in the life of the CaliBaja Mega Region. Where, as the Center for U.S.-Mexico Studies at UC San Diego reports, “we make things together.”

California Mexico Trade Facts Fig 1
Figure 1. From “Trade and Competitiveness in North America: A Focus on the Cali Baja Mega-Region”
released June 2018 by the Center for U.S-Mexico Studies at UCSD.

Here, cross border trade and co-production boomed after the North American Free Trade Agreement (NAFTA) went into effect in 1994. Capitalizing on both the binational familial and business ties that have existed for decades, California and Baja California are two arms of the same great opportunity. An opportunity that that has spurred innovation, created jobs, and maximized efficiency and speed to market on both sides of the border.

NAFTA Negotiations and the Problem with Just Talking Deficits

NAFTA lowered trade barriers and eliminated tariffs for this kind of crossborder cooperation. When President Trump announced he wanted a better NAFTA deal, you’d have been hard pressed to find someone that didn’t agree the nearly 24-year-old trade deal needed some modernizing. But the motivation behind the negotiations from the U.S. government seemed to lie in just one set of statistics: trade deficits.

stubborn facts trade deficitFigure 2. Center for U.S.-Mexico Studies Stubborn Facts Series: Country of origin content in imports from Mexico.

“Trade is not a zero-sum game anymore and talk of ‘trade deficits’ misses the point. If the product being ‘imported’ contains 40% content made in the country that imports it, it is not a ‘loss’ to purchase it,” says Denise Ducheny, Senior Policy Advisor for the Center for U.S.-Mexico Studies (USMEX). Ducheny is also a former California Assembly member and California State Senator.

What is the CaliBaja Mega Region?

The CaliBaja Mega Region includes San Diego County, Imperial County and the Mexican state of Baja California. In June, the Center for U.S.-Mexico Studies released the report, “Trade and Competitiveness in North America: A Focus on the Cali Baja Mega-Region,” to provide context using facts for stakeholders in NAFTA negotiations. The report was a collaborative investigation by the Center for U.S.-Mexico Studies, World Trade Center San Diego, and El Colegio de la Frontera Norte.

Key Study Findings on the CaliBaja Mega Region

  • Cali Baja’s foreign exports total $24.3 billion, of which $6.2 billion stays within the mega-region.
  • Mexico is California’s largest export market, with annual exports totaling $26.8 billion. Today, trade with Mexico supports more than 566,000 jobs in California.
  • Since NAFTA was signed, California exports to Mexico have grown by 311 percent.
  • Cali Baja produces commodities including medical devices, semiconductors, aerospace parts, and audio and video equipment. Together, the mega-region’s manufacturing sector directly employs 418,300 workers.
  • In the U.S., nearly 87 percent of manufacturing job losses from 2000 to 2010 were caused by productivity increases as opposed to the relocation of jobs attributed to trade.
  • More than 51 percent of trade within Cali Baja is in the service sector. These include:
    • $7.6 million in computer systems design and related services
    • $3.5 million in scientific R&D services
    • $2 million in software publishers

This is nothing to balk at. In fact, it’s a story is repeated not just in border states like California, Texas and Arizona, but all across the United States. A conclusion drawn from this data is that our respective countries have evolved together and it’s no longer about manufacturing either in one country or another. Our work is complementary and collaborative.

manufacturing jobs mexico us stubborn factsFigure 3. Center for U.S.-Mexico Studies Stubborn Facts Series: Complementary Job Creation in the U.S. and Mexico.

“Cali Baja’s manufacturing sector has emerged as one of the world’s strongest cross border supply chains. The competitive advantage resulting from this integrated, co-producing sector fuels the innovation economy and fosters competitiveness, all while supporting high-paying jobs on both sides of the border,” the report explains.

Case Studies Show Success of Regional Co-Production and Cooperation

The CaliBaja Mega Region is the world’s largest medical device cluster, according to the USMEX report. Over 80 medical device companies have found success in Baja California including the major players DJ Orthopedics, Greatbatch Medical, Care Fusion, Phase 2 and Medtronic. The medical device manufacturing industry in Baja is booming supported by over 50,000 dedicated personnel. Aspen Medical Products, a leader in spinal bracing products, expanded operations to Tijuana in 2015.

“We considered locations such as Mexicali, Ciudad Juarez, Rosarito, and Tijuana. We chose Tijuana for its proximity to our Irvine, California Headquarters and the quality of the workforce. Being a finished goods contract manufacturer of medical devices, cost is a huge deal for us, as is proximity to the United States,”” said John Hamilton, Vice President of Strategic Initiatives and Special Projects for Aspen.

Further reading: How 70% of the Largest Medical Device Manufacturers Got Started in Mexico

When it comes to aeronautical, defense and space manufacturing, the CaliBaja Mega Region also shines. For nearly 50 years Baja has been home to major aerospace manufacturers such as Rockwell Collins (48 years), Honeywell (31 years), Gulfstream (28 years), with the airplane interior lighting company SwitchLuz opening a Tijuana plant in 1956. In 2012, the Secretary of the Economy of Mexico officially recognized the Aerospace Cluster of Baja California, now representing over 82 companies.

Conesys, the Torrance-headquartered specialized connector manufacturer for the aerospace industry, opened a facility in Tecate in 2013. With over 1,000 employees in North America, the Conesys Mexico facility in Baja California focuses on molding and assembly. When asked why they chose Mexico, proximity was a major motivating factor.

“One of the main features that influenced our selection of Tecate for the new facility was its proximity and ease of the closest U.S. border crossing,” said the plant manager, Andres Murillo.

Alliances between government, the private sector and academia (sometimes referred to as the “Triple Helix”) have also fostered an education-rich environment where technical training in specific processes and products have become collaborative ventures. Honeywell’s Mexicali Research & Technology Center (MRTC) in the Baja California capitol allows for full scale simulation of multiple aircraft systems, providing the ability to test their interoperability, control and technical maturity. Engineering and aerospace university students in Baja California who intern at the MRTC are often hired upon graduation.

Further Reading: Mexico’s Aerospace & Defense Manufacturing Industries

What Does the Future of NAFTA Hold for Manufacturing and Trade?

This last week saw the three nations come to a final deal for NAFTA, now called the United States-Mexico-Canada Agreement (USMCA).

The North American block is clearly a much stronger global player if it continues the co-production and integration begun under NAFTA. There are also corollary security benefits and other positives that have evolved from the tri-party trade relationship,” Ducheny says.

Further Reading

New USMCA NAFTA Deal – Key Provisions of the New Agreement

The opening vision of the CaliBaja Mega Region should give manufacturers peace and lawmakers pause as they go into the next phase of negotiations. With or without NAFTA, the CaliBaja Mega Region shows just how successful North America can be when we do it together.

Want to Learn More? Upcoming No-Cost Education Opportunities

CPI Baja Manufacturing Tour 2018

Pick Up Location: Pick Up & Drop Off in San Diego
Tour: Factories in Tijuana and Tecate
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Article References & Sources

  1. Center for US-Mexican Studies at UC San Diego Report: “Trade and Competitiveness in North America: A Focus on the Cali Baja Mega-Region”
  2. Co-Production International, Mexico’s Industries

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