It would be incorrect, though understandable, to assume that economic integration between Mexico and the United States, particularly Texas, is a natural byproduct of geography, and therefore both inevitable and likely permanent. The reality is that such integration is the result of policy decisions made decades ago, and, at least on the U.S. side of the border, Texans led that process. NAFTA was negotiated during the administration of the Texan George H.W. Bush and gained final approval during the administration of the Arkansan Bill Clinton, who maintained strong political and financial ties with his larger neighboring state and who enlisted powerful Texans and political allies like Treasury Secretary Lloyd Bentsen and Texas Governor Ann Richards to push the agreement through Congress. Richards’ successor, George W. Bush, then promoted both the hard and soft infrastructure needed to deepen economic ties with Mexico, and the three decades since have seen Texas grow at rates well in excess of the national average. There are multiple causes for this economic performance, but there is a consensus that Texas has been one of the winners of economic integration with Mexico, driven by these forward-looking policies.
But policy gives, and policy can take away. Faced with the largest threat to its economic model in recent memory, Texas’s political and business leadership has been remarkably docile, a stance likely driven by some combination of fear of speaking out and complacency. The source of fear is clear enough, while the complacency likely reflects an understandable confidence stemming from the successful lobbying effort by the business community on both sides of the border to preserve and strengthen NAFTA and convert it into the USMCA during the first Trump administration. Such confidence in a positive outcome may be well placed, because the economic interdependence between the United States and Mexico is sufficiently high that walking away from USMCA would damage the economies of both countries. But prudent leadership guards aggressively against what economists call “tail risks”: low-probability but high-impact events.
While policy-makers wait, investment uncertainty, far from being chaotic but ultimately harmless, has already done meaningful damage to Mexico’s economy, which grew at less than 1% in 2025 (though it bears mentioning that domestic policy uncertainty has also played a significant role in weakening Mexican economic growth). As for Texas, preliminary growth and employment data may indicate that the state’s economic outperformance compared to the nation as a whole may be dissipating, and the economic boost from AI infrastructure construction and productivity more generally could be papering over the economic damage to Texas from trade policy limbo.
Actors on both sides of the border would be wise to develop and execute a dual strategy: one that more forcefully warns against the economic damage and missed economic opportunities that would result from a weakened economic relationship with Mexico, while also presenting concrete proposals to strengthen the agreement and North American supply chains more broadly.
First, one of the largest and fastest growing categories of trade between Mexico and Texas is electronics, including servers for data centers, semiconductors, computers and computer parts, and other electronics products. Texas will likely require greater Mexican imports of some of these products as it continues its data center build-out, and the state is also a key component of the broader U.S. strategy to expand domestic semiconductor production and reduce dependence on imports from Asia, which are increasingly viewed as boch an economic and a national security vulnerability.
The USMCA does not include local content requirements for the electronics sector, and for many products Mexico primarily assembles imported components from Asia. Meanwhile, one of the goals of Mexico’s economic development strategy, Plan México, is to “move up the value chain” by producing more value-added content domestically rather than relying heavily on imported Asian inputs. Stakeholders on both sides of the border should therefore develop proposals aimed at increasing local value-added production in Mexico. This would support Mexico’s development objectives, help the United States advance its geopolitical goals, and once again position as a central node in North American integration.
Mexico can also undertake additional domestic reforms that would allow its economy to take fuller advantage of the opportunities created by its proximity to Texas. Abundant natural gas from Texas provides Mexico with a competitive advantage relative to other energy-importing manufacturing economies, but adequate investment in grid infrastructure and the incentives for the construction of new power plants will be necessary to fully realize this potential. Investments in road and port infrastructure that complement Texas’s infrastructure will also be essential to any strategy aimed at deepening North American supply chain integration. Each of these initiatives requires incentives for private sector investment, while increasing public investment as a share of GDP.
Finally, both Texas and many parts of Mexico possess abundant solar and wind resources, and the region should continue pursuing an “all of the above” approach to energy production in order to meet projected increases in industrial and residential demand while also responding to the realities of climate change.
It is possible -and even likely- that a stronger Texas-Mexico economic relationship could emerge from this current period of stress and uncertainty, provided that political and business leaders on both sides of the border communicate clearly about the risks and deliver a concrete and optimistic strategy capable of advancing shared cross-border economic and geopolitical objectives.
