On U.S. Side of Mexico Border, Retailers Say Trump's Tough Talk Hurts Business

By Jim Carlton Features Dow Jones Newswires

SAN YSIDRO, Calif. -- For decades, this border community has prospered because of Mexican shoppers crossing into the U.S. to buy everything from shoes to phones.

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But a few years ago the value of the peso against the dollar fell by half as oil prices plummeted. American big-box stores that opened in Mexico siphoned customers away from U.S. shops.

Now, business owners in the San Diego district of about 30,000 population say the decline has worsened in the last five months because of a new factor: economic and political tension between the U.S. and Mexico.

President Donald Trump came into office based in part on pledges to beef up security on the Mexican border by building a wall and renegotiating what he called unfair trade pacts like the North American Free Trade Agreement. Business groups have cautioned the Trump administration to avoid putting Nafta's benefits at risk.

Since Robert Lighthizer was approved by the Senate to be the U.S. Trade Representative in May, the Trump administration has softened its rhetoric on Nafta toward modernizing the agreement rather than a wholesale "rethinking the issue of trade" that Trump promised on the campaign trail.

The peso got a 4% bump after President Trump's inauguration, then tumbled as tensions escalated between the U.S. and Mexico. Late Friday the dollar was roughly flat at 18.68 pesos.

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The currency fluctuations have made it less attractive for Mexicans to cross the border to shop.

All along the U.S.-Mexican border, American retailers are reporting sharp falloffs in sales this year that many attribute to tough policies on trade and immigration. Mr. Trump has insisted that Mexico would pay for a border wall, launched a renegotiation of the North American Free Trade Agreement, and tightened deportation rules.

Stepped-up deportations and border enforcement, merchants say, have discouraged many Mexicans from venturing north to shop at stores that often feature better prices and selection on everything from women's apparel to smartphones and other electronics.

"It's like a chilling effect," said Denise Ducheny, senior policy adviser at the University of California, San Diego's Center for U.S.-Mexican Studies.

Still, some Mexican shoppers said Mr. Trump's tough talk doesn't faze them.

"He's just another president," Arlette Mendez, a 43-year-old visitor from Mexico City, said as she entered a discount outlet mall in San Ysidro in April in search of brand-name clothing.

In Texas, the state's five biggest border metropolitan areas -- Brownsville, McAllen, Del Rio, Laredo and El Paso -- combined received 2.7% less sales tax allocations in the first quarter than the same quarter a year earlier, according to estimates by the Texas Comptroller's office.

Those numbers fell to $96.8 million from $99.5 million, even as cities statewide in Texas saw a 2.44% jump in the sales tax allocations over the same period.

The same data on sales tax allocations showed gains in most other Texas cities that aren't on the border, including Dallas, up 3.8%, Fort Worth, up 7.2%, Austin, up 4.5%, and San Antonio, up 2.6%.

"It's depressing," said Eric Pineda, co-owner of a Cricket Wireless outlet in San Ysidro. He estimates his store has seen a 50% drop in sales so far this year compared with last year.

Mr. Pineda said his store, which sells cellphone plans, has suffered in part from a reluctance of Mexican customers to venture across the border. "[April] was the worst month of the five years we have been in business, and I think it's because of the president," Mr. Pineda said.

In Texas, the steepest decline in shopping was reported in the Rio Grande Valley city of McAllen, where sales tax allocations fell 6.4%. Earlier this year, a social media campaign called #Adios McAllen was launched, calling on Mexican shoppers across the border in Reynosa to boycott the border city.

In El Paso, Texas, which with its cross-border counterpart Juarez makes a bi-national metropolis of about 2.5 million people, pedestrian crossings from the south declined 15.7% in February to 496,048 from 588,719 in November, while passenger-vehicle crossings decreased 4.2% to 963,659 from 1,005,512 over the same period, according to preliminary data from U.S. Customs and Border Protection.

Economists say much of the shortfall represents Mexicans either making fewer shopping trips into the U.S., or none at all.

"A lot of visitors say they no longer feel welcome in the U.S. or safe," said Tom Fullerton, a professor of economics at the University of Texas at El Paso. "They worry they will be subject to searches by uniformed officials and are concerned they could have their visas or passports confiscated."

White House officials didn't return a call for comment.

Tanny Berg, a commercial property landlord in El Paso, said the vacancy rate for 100,000 square feet of retail space he and a partner control near that city's international border has doubled from 15% a year earlier to 30%.

"We have seen tenants moving out in the last two months," Mr. Berg said in May. "What's really hurting us now is the Mexicans are not coming to shop here."

Mr. Fullerton said retail sales from Mexicans account for about 10% of El Paso County's $12 billion in annual retail sales, or between $1.1 billion and $1.2 billion when those sales peaked in 2014. The sales dipped to about $1 billion last year due in part to the peso problems and will likely fall below $1 billion this year, he said.

The slowdown is likely to have less impact on San Diego County, whose gross domestic product of $220 billion dwarfs that of El Paso's $29 billion, according to federal data.

But it is having an outsize impact on San Ysidro, a community in the city of San Diego where about 650 of the 800 businesses are stores that cater mainly to Mexicans, said Jason Wells, executive director of the San Ysidro Chamber of Commerce. He said 60 stores have closed in the 18 months though May -- half of them since the election.

"That started with the peso devaluation, but the rhetoric has exacerbated that," Mr. Wells said.

Some retailers have other theories for the sales decline. Myong Ko, who owns MK Jeans in downtown El Paso, attributes his 50% drop in sales over the past five years more to macroeconomic problems, including falling oil prices and weakness of the peso. "It doesn't matter whether it is Mr. Trump or Mr. Obama," Mr. Ko said.

Some stores have managed to offset the lost sales.

At San Ysidro's Asics Super Outlet, manager Daniel Torres said advertising at San Diego conventions has attracted enough business for revenue to increase 85% so far this year despite a 25% fall in foot traffic.

"We had to think outside the box," said Mr. Torres, who added the conventioneers, while fewer in number, tended to buy more expensive shoes.

A call to a corporate spokesman for Japan-based Asics wasn't immediately returned.

Political leaders in San Diego and Tijuana -- a binational metropolis of about five million people -- have worked in recent years to forge closer ties. Binational efforts have been launched to open a new land port of entry and extend a rail line into the U.S. In 2015 the Cross Border Xpress pedestrian bridge opened, allowing airline passengers to walk from the U.S. to board flights at Tijuana's airport.

"We will survive, but there will be damage to the economy," said James Clark, a cross-border business consultant in Chula Vista, Calif.

Write to Jim Carlton at jim.carlton@wsj.com

(END) Dow Jones Newswires

June 04, 2017 16:35 ET (20:35 GMT)