Global Economy
August 20, 2015

The Starbucks Effect of North America Economic Relations

By Andrea Durkin

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Canada and Mexico are the borrow-a-cup-of-sugar, won’t-you-please-watch-my-kids-for-an-hour kind of neighbors. Much has been written about North American trade and investment relations, but probably not nearly enough. Presidential candidates on both sides will once again question the value of this relationship, particularly as the U.S. works to finalize the next big trade deal.

The more than $3 billion* worth of goods that travels across U.S. borders on any given day supports border cities. But the bigger story is the additional millions of people and metropolitan areas that comprise the full length of North American supply chains.

The cities play in each other’s yards.

Brookings research shows that about half of goods traded in North America are the products of advanced industries including aerospace, automotive, electronics, machinery, pharmaceuticals and precision instruments. Metropolitan areas account for nearly 70% of the output and 75% of the North American trade in advanced industrial products.

Volumes of over $1 billion a year are traded in automotive between Detroit and Toronto, in electronics between San Jose, California and Mexico City, and in aerospace between Seattle and Montreal. Look at this interactive map to see what and how much your home city trades with Canada and Mexico.

Mexico’s curb appeal is steadily improving.

Real GDP in Mexico is projected to grow by 2.9% this year and by 3.5% in 2016. Economists expect that U.S. growth and cheaper energy inputs will support the continued strong performance of Mexico’s manufacturing exports.

Mexico has attracted more international investment in recent years, increasingly directed to high value-added sectors. But OECD and World Bank analysis points out that other parts of the economy are still characterized by low-skilled work, weak productivity and out-of-date technologies, all of which create a drag on growth and hurt relative living standards among the general population.

Continued progress in the structural reforms agenda of President Enrique Peña Nieto in the areas of labor, education, competition policy, financial sector, telecommunications and energy, could boost Mexico’s competitiveness by improving the investment climate, enhancing worker productivity, and spurring infrastructure development.

Good neighbors increase your home’s value.

Earlier this year, real estate research group Zillow determined that between 1997 and 2013, homes located within a quarter-mile of a Starbucks coffee shop increased in value by 96%, compared with 65% for all homes over that period. Proximity counts for a lot.

But a neighborhood is not just an area defined by geography. Neighborhoods serve to create a set of social and business networks.

The relationships between suppliers in all three countries drive co-production and create North American content. One-quarter of U.S. imports from Canada consist of value added from the United States. 40% of U.S. final good imports from Mexico consist of value added from the United States. Together, Canada and Mexico account for three quarters of all U.S. value added returned from abroad.

It gets better. Because Canadian and Mexican products contain high levels of U.S. content, the U.S. economy gains when Canada and Mexico boost their exports to the rest of the world. This is why the benefits of the Trans-Pacific Partnership Agreement go beyond expanding U.S. exports to new markets, as Ed Gerwin explains in “Together for the TPP”.

“The Starbucks Effect” is at work in the North American neighborhood.

Because we share high quality trade and investments and integrated production platforms, each country in North America benefits when the other thrives. Starbucks remains high on lists of premium brands. It’s worth investing in policies that protect and promote the North American brand because our neighbors to the north and south add great value to American products, to the U.S. economy, and to the North American Neighborhood.

By the way, in case you were wondering where to buy your next house, the Washington, DC area is among the 10 metropolitan areas in Zillow’s study with the greatest Starbuck’s Effect.