With Tax Cuts And Wage Hikes On Tap, Cautious Optimism On Border

By Murphy Woodhouse
Published: Friday, November 30, 2018 - 5:00am
Updated: Friday, November 30, 2018 - 11:55pm

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Morley Avenue Nogales
Murphy Woodhouse/KJZZ
Morley Avenue is the historic heart of retail in Nogales, Arizona, and starts right at the border.

In a cavernous Nogales, Sonora factory, ergonomic furniture is being sewn, pieced and pounded together.

New York-based Humanscale has 180 workers there. But as big as the plant is, it’s just one of dozens of export manufacturing facilities — or maquiladoras — in the border city. It employs just a fraction of the more than 40,000 in the industry locally.

“Our markets are all around the world. We have customers on the East Coast. We have another facility in California. From here we can cover the central (U.S.),” said plant manager Daniel Rivera. “The needs are equally distributed.”

On the mind of Rivera and his industry colleagues the length of the U.S.-Mexico border is a package of border reforms proposed by incoming Mexican President Andres Manuel Lopez Obrador, who is known universally as AMLO.

AMLO and his center-left party Morena hope to cut taxes, double the minimum wage and equalize fuel prices with American sellers within a thin strip of the northern border. The idea is to promote economic development at the frontier and slow U.S.-bound migration.

With a landslide victory for Morena in July delivering strong legislative majorities, those changes are likely coming soon.

Andrew Selee is president of the Migration Policy Institute and author recently of "Vanishing Frontiers," a recent book looking at U.S.-Mexico economic integration. He said AMLO's proposal will probably become reality, but there could be some tweaks.

“He can certainly pass any measure that he wants to,” Selee said. “But we’re likely to see reality set in as they look at how to implement the promises he made to the northern border communities.”

The tax cuts will eat into federal resources, Selee added. He thinks the measures are more likely to be scaled in over time.

While some are also concerned about the unintended consequences of intervention in labor and fuel markets, business leaders are cautiously optimistic about what that will all mean for Nogales, Sonora.

“The ‘what’ sounds very good,” said Wendee Molina, head of the local maquila association and an executive with the national export manufacturing organization. “The ‘how’ is what we’re waiting for.”

Molina thinks the lower sales and business taxes could be a boon for border residents and investment. But she had a suggestion for how to minimize the impact of the wage increases.

“Hopefully it’s in steps. So people can get prepared, and investors can get prepared for the changes as well.”

“I’ll still benefit. I’m above the minimum wage, but there are people who aren’t.”
—Jesus Ernesto Lopez Rubio, maquila worker

But many companies are already close to compliance. Eleazar Coronado, head of the Nogales industrial relations association.

“It’s going to affect us, but minimally because right now everyone is paying above minimum wage,” said Eleazar Coronado, head of the Nogales industrial relations association.

The average maquila wage is around $7.70 per day, nearly twice the current minimum wage, according to Coronado. Wages are still likely to rise across the board, and prices could too.

But companies like Humanscale are also working on ways to run more efficiently to keep prices down.

“We are not looking necessarily to make a price increase,” Rivera said. “What we’re looking to do, is how can we become more competitive.”

Many companies will also see cost reductions due to the proposed slashing of business taxes.

Nearby, maquila worker Jesus Ernesto Lopez Rubio and his family were catching a bus to the city center before his graveyard shift at a local maquila. He welcomes the changes, even though he and his wife make substantially more than the proposed new minimum wage.

“I’ll still benefit. I’m above the minimum wage, but there are people who aren’t,” he said.

Nogales Shopping
Murphy Woodhouse/KJZZ
Shoppers browse Morley Avenue in Nogales, Arizona. Many cross over from Nogales, Sonora, and the border is visible in the background, as is the razor wire recently installed by the U.S. military.

A few miles north, shoppers are browsing along Morley Avenue, the historic heart of retail in Nogales, Arizona.

Most are Mexican nationals crossing over from Sonora. Most sales tax revenues come from them. A weak peso and long border waits have hammered local retailers in recent years. Many also feel that concertina wire recently installed on the border by the U.S. military doesn’t help.

Evan Kory’s family owns two of the longest standing stores on Morley, including a bridal shop just a stone’s toss from a small border crossing.

“If the people are more secure economically, that means that they’re more secure to shop,” Kory said.

Lower taxes on the Mexican side may mean more shop there. But he said higher wages and the prospect of increased investment are good news for both sides of Nogales. The border can’t block a rising tide.

Outside on Morley, Miriam Robles and her daughter were doing some holiday shopping. As with many Nogales, Sonora residents, such trips are almost weekly.

With the reforms, Robles said with a laugh, “I think it’s going to be the same, but with more money.”

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