October 20, 2016
A U.S. PRESIDENTIAL candidate publicly claimed that Mexico is a land of criminals, drug traffickers and rapists; rather than being forced to withdraw, he was rewarded with his party’s nomination. Is it any wonder that for generations, Mexican policymakers saw fit to define themselves in opposition to Washington? After the Mexican-American War, when the latter dispossessed the former of its vast lands north of the Rio Grande, bilateral relations historically were cool and formalistic, overlain by Mexico’s skepticism of the United States and an acute sense of sovereignty. Family and economic ties kept the relationship vibrant at local and regional levels, but the state of the official relationship was well captured by former president Porfirio Díaz, who reportedly lamented, “Poor Mexico [is] so far from God [and] so close to the United States.”
For their part, U.S. officials generally saw Mexico as a corrupt, barely democratic backwater pursuing a foreign-policy agenda contrary to Washington’s aims, particularly in Latin America and in international forums. The nation was considered to be a source of regional financial instability, ideological ferment and lawlessness, where the United States periodically felt it necessary to intervene, at times militarily, to protect its own interests.
Of course, both visions were caricatures at best—willful misrepresentations at worst. But they more or less defined the bilateral relationship until leaders in both countries came to their senses and realized that, if they were to be competitive in a rapidly globalizing world, they would need to cooperate. For Washington, that meant recognizing that it could more effectively pursue its economic and security interests by befriending, rather than antagonizing, the country sharing its two-thousand-mile southern border.
IT WAS Mexico, after the wreckage of the 1980s’ peso crisis, which first suggested a fundamentally new approach. The keystone of the effort was proposing a new economic relationship with the United States that, along with Canada, eventually became the North American Free Trade Agreement (NAFTA).
NAFTA was an innovation in economic relations. It was, foremost, designed to increase trade and investment among its three parties through North American economic integration. The deal was aimed at enabling them to better compete with emerging blocks in Europe and Asia that policymakers anticipated would define global economic relations in the twenty-first century. But it was also much more. Mexicans saw NAFTA as the primary vehicle for creating an open-market democracy, a means of providing Mexico with a clear path toward political and economic modernization while institutionalizing an ever-tighter cooperative agenda with the United States.
NAFTA has been a success, even if it has not been the panacea for all ills, as its proponents suggested. Nor has NAFTA been responsible for all the problems that its detractors frequently attribute to it. Since 1993, the year prior to NAFTA’s implementation, U.S. trade in goods and services with Canada and Mexico increased from $290 billion to almost $1.1 trillion in 2014. Annual trade between the United States and Mexico has quadrupled (with Canada, it has more than doubled). Canada is America’s top trading partner; Mexico is its second-largest export market and third-largest trading partner. More than forty U.S. states count either Canada or Mexico as their top export destination. As Mexico’s economy grows, it offers new opportunities to its workers; that, coupled with the still-sluggish U.S. economy, has brought net migration flows to the United States from Mexico to virtually zero.
Perhaps more importantly, beyond tangible commercial benefits, NAFTA institutionalized a vision for North America that would have been impossible absent significant political and economic reforms in Mexico, both catalyzing such reforms and also benefitting from them. NAFTA unquestionably supported Mexico’s democratic transformation by requiring legislative and regulatory changes that might not otherwise have occurred. It empowered new economic constituencies and a growing middle class that has developed an increasingly clear political voice. Mexico’s politics are now more democratic than ever before, and the Mexican people have made clear through the ballot box and recent elections their disinterest in returning to previous ways.
What the negotiators drafted proved to be an effective framework for ordering the majority of North American trade and investment relations as they then existed, enduring economic stresses, political transitions and security crises since that time. What NAFTA left out for political purposes, however, was just as important as what it included. It did not directly address immigration. It did not focus on border infrastructure or management. It did not include energy. It excluded financial coordination. And it did not require changes to the rule of law or judicial reforms. None of these topics would have been realistic to include at the time, and perhaps not even now, but they have subsequently become controversial issues in the U.S.-Mexico relationship. As a result, NAFTA itself has unfairly and unwisely been pilloried as an agreement that only made matters worse. And if NAFTA has been bad for the United States, Mexico and Canada, should it not be abrogated rather than expanded?
The 2016 U.S. presidential campaign threatens to become an inflection point. For the first time since the end of the Depression, the leading candidates of both major political parties have positioned themselves as trade skeptics. Trade expansion is always a tough sell politically, and without consistent positive messaging it is too easy to lose momentum. When major-party candidates go even further, by wrongly claiming that NAFTA has been a “disaster” and that “Mexico is eating our lunch,” and that the only way to make our nation great is to wall ourselves in from outside competition, they put at risk one of the foundations of U.S. economic strength and global competitiveness and millions of related jobs.
But they also threaten to undermine the progress in bilateral relations with Mexico that has been painstakingly, patiently developed over the past generation, giving license again to those on both sides of the border who prefer to see each other as adversaries rather than partners. Recreating the possibility of having a wary or even hostile southern neighbor would significantly reduce cooperation across the entire spectrum of the bilateral agenda, from immigration to drug trafficking, and law enforcement to terrorism. These are not theoretical risks; they are real, reducing cooperation just when the future of the United States is more intertwined with Mexico than ever.
AT THE same time, of course, Mexico is facing its own challenges. The current president, Enrique Peña Nieto, came to power in 2012 with a mandate for reform and the youthful energy to implement an aggressive agenda. After twelve years of center-right presidential administration, which became synonymous with the fight against narcotics and a tremendous toll on lives and security, the Mexican people voted for a return to the Institutional Revolutionary Party (PRI), which had dominated politics for seventy-one years until 2000. They voted for a renewed emphasis on economic growth and a reduction in the violence that had taken over parts of Mexico. Headlinesproclaimed this to be “Mexico’s moment,” and expectations ran ahead of reality. With the support of the center-right National Action Party (PAN), Peña Nieto pushed through an ambitious reform agenda. From labor to education to telecommunications to the tax code to energy, the reforms directly addressed those issues that had been identified as holding Mexico back economically and which other previous governments had been unable to pass. The last of these—energy—was perhaps the most significant, opening for the first time in over seventy-five years to foreign investment a sector that had traditionally been at the very heart of Mexico’s efforts at self-determination and control of the commanding heights of the economy. But a recognition that Mexico was being left behind, along with the need for a more sustainable means to finance the national budget beyond contributions from state energy supplier Petróleos Mexicanos (PEMEX), caused the government to push through the reforms that will potentially grow the energy sector while building competitiveness across the economy in the form of greater efficiencies and lower prices, particularly in electricity.
Such significant reforms take time to work through the economy even under favorable circumstances. Unfortunately, just as Mexico was opening its energy sector to outside investors, the global market for oil collapsed, impacting the willingness of investors to look at the Mexican properties under the terms offered and reducing the prices they were willing to pay to procure them. The significant new resources from energy and other investments on which the government was counting have not materialized at the anticipated level. Meanwhile, a sluggish Mexican economy has been growing at just over 2 percent, far less than the level that Peña Nieto claimed he would accomplish during his campaign. Patience for an economic rebound and the favorable fruits of economic reforms has begun to wane, and the political honeymoon has long since expired.
And then there are the twin Achilles’ heels of Mexican politics: violence and corruption. As a candidate, Peña Nieto was required to overcome the memory that many Mexicans harbored of the gross political and economic corruption engendered by the old PRI. A member of the younger generation, to be sure, he was nonetheless forced to push back against allegations that, once in office, he would be seduced by the party’s traditional way of doing business. This was always his primary political vulnerability. Yet, curiously, he never seemed to highlight or prioritize anticorruption initiatives and justice reforms. Similarly, de-emphasizing the fight against cartels and drug traffickers did not make these issues go away. As the government called for increasing external investment, it only pushed crime and violence out of the limelight until they could no longer be ignored.
Mexico’s “moment” seemed distant during the summer of 2015. The country was rocked by scandal: The spectacularly embarrassing escape of drug lord Joaquín Guzmán Loera (“El Chapo”) from his maximum-security prison cell; the gangland-style murder of journalist Rubén Espinosa and four others in Mexico City; and perceptions of corruption and self-absorption swirling around a ruling class unable or unwilling to get to the bottom of the Ayotzinapa massacre from the previous year (even as the president maintained an active foreign travel schedule). Subsequently, the final report on the massacre issued in April 2016 by a group of independent experts from the Inter-American Commission on Human Rights raised additional questions over the possibility of a government cover-up and the use of torture to extract confessions. All these scandals, and others, combined with the incomplete reform agenda to sour the political mood.
Regrettably, this has reminded Mexicans and outside observers alike that in some ways, despite NAFTA and other trade agreements to which Mexico is a party, “business as usual” remains alive and well. As much of Latin America grapples with official malfeasance and works to cast aside corrupt leaders and practices, Mexico seems to be lagging behind. Trust in the system is eroding. Distrust and cynicism are why the energy reforms—impacting a sector with monumental economic importance and symbolic value—have been conducted under strict guidelines and acute transparency.
Nonetheless, perceptions of corruption with impunity continue to plague the country. Meanwhile, violence attributable to the narcotics trade continues to flare in a number of regions, with gruesome reminders of savagery regularly splayed across various media platforms. Coming into office, the new administration promised higher economic growth and a more effective approach to addressing public security. As the president rounds the corner into the final two years of his mandate, voters are impatiently waiting for him to deliver on his promises.
THE MOOD has deteriorated considerably, and the president is deeply unpopular, even more so after inviting Mexico-bashing presidential candidate Donald Trump to meet with him in Mexico City in August, a move that backfired spectacularly. Lasting damage has already been done to the relationship: Mexicans continue to be offended by rhetoric coming from the U.S. campaign trail, increasing sensitivities to any criticism, no matter how legitimate, such as rule of law concerns. Ironically, the louder the anti-Mexico, anti-immigrant, antitrade drumbeat, the less impact the United States has in addressing issues of corruption and violence in Mexico because it feeds anti-American nationalism. There is just too much history that must be overcome south of the border. At the same time, corruption and violence support the narrative of those critics north of the border who insist that the United States should be wary of Mexico because of all the trouble it allegedly brings forth. A wall is therefore required to keep “them” out. This rhetoric is, of course, disingenuous. It demagogues the challenges while airily dismissing the symbiotic economic integration of the United States and Mexico. It also ignores the fact that the border region itself is fully integrated by family and community ties, history and economic codependency. The United States weakens these links to its own detriment.
No longer is it meaningful, for example, to talk about separate economic paths, because production models have changed and North America itself has become the production platform. The United States, Mexico and Canada do not merely trade products anymore; they now design and make them together. In many industries, joint production and supply chains have developed to such an extent that, from the commercial perspective at least, national borders no longer define products. This is to the benefit, not detriment, of the United States: according to the National Bureau of Economic Statistics, every dollar of U.S. imports from Mexico includes up to 40 percent of U.S. content; for Canada it is 25 percent. That means that job creation in Mexico and, to a lesser but still meaningful extent, in Canada, creates additional jobs in the United States, and vice versa. Contrary to conventional wisdom, Mexico is not a cesspool of low-cost labor; it is increasingly an innovation-driven economy to which investors look due to its labor productivity, not exploitability. As a result, North America has become a true twenty-first-century economic space, just in time to compete more effectively with China, India and other economic rivals.
Consider as well that in 1994, when NAFTA went into force, there was barely an Internet, much less Facebook or Twitter; e-mail was relatively new. Nobody except futurists and technology prophets had a clue how radically and rapidly electronic communications would fundamentally alter businesses around the world. Technology has made possible incredible advances in manufacturing, energy, financial services, medical products, agriculture and virtually every other economic sector in the past two decades. The auto sector, arguably the original driver of North American economic integration, has now advanced so far that cars are literally driving themselves. Entire industries that were not even contemplated by NAFTA are now a significant part of all three economies.
Rather than building walls, promoting economic growth and competitiveness requires that borders work better. Since September 2001, U.S. borders with Mexico and Canada have “thickened” and commercial activities have understandably taken a back seat to security. The result has been a lack of attention to commercial needs at the borders—specifically in cross-border infrastructure, but in other areas as well—that has created unnecessary bottlenecks for commercial traffic and eroded the compelling economic advantages of geographic proximity. Infrastructure has generally languished although steps are now being taken to alleviate the worst pressures. But the fact remains that North America’s twenty-first-century economies are framed by a twentieth-century trade framework (NAFTA), utilizing nineteenth-century infrastructure. As economies grow and trade increases, this picture will continue to deteriorate absent further concrete steps.
THE STRATEGIC opportunity for the United States, therefore, is to capitalize on the increasingly unified North American economic space and dynamism, while assisting Mexico where possible to advance along its reform agenda, including on corruption and the rule of law. Rather than seeking to limit U.S. engagement with Mexico and Canada, the moment is ripe to think bigger and bolder about North America and regional competitiveness, counteracting the powerful voices that are working to place obstacles in the path of deeper engagement. The three leaders of North America have sought to do exactly that in meeting periodically for North American Leaders Summits (NALS), a process that should continue on an annual basis under the next U.S. president.
The ground has shifted on the North American agenda. Market conditions have taken some of the buzz away from Mexico’s energy reforms, while U.S. denial of the Keystone XL Pipeline permit request was seen as a slight directed at the previous Canadian government. Meanwhile, the presidential campaign has overwhelmed the entire U.S. political process, and the leading candidates from both major parties have sought to distance themselves from further trade expansion initiatives, including the Trans-Pacific Partnership, which is perhaps the most realistic way to update the North American economic framework. Traditionally, the NALS tend to focus on the nuts and bolts of the trilateral relationship: trusted traveler programs, rail transportation plans, reducing costs at the border. But the luxury of playing small ball no longer exists. The game has changed, and the three leaders of North America should stand together in a full-throated defense of North America, strengthening the case for cooperation and expressing a compelling regional vision, at each future opportunity.
At bottom, North America is a critical pillar of U.S. economic and national security. By definition, a robust, mature relationship between the United States and Mexico has to be part of that equation. Leadership to promote such a message is required, not just from politicians and elected officials, but also from everyone in the business community that has a stake in a healthy U.S. economy. The pattern has generally been to remain silent in the face of repeated, inaccurate or misleading attacks on U.S.-Mexico trade and investment relations, border affairs, and the importance of Mexico to U.S. economic and national security. Why put a fist into a hornets’ nest? But such an approach has longer-term consequences. Whereas national leaders, including business executives, routinely spoke out in favor of deepening relations prior to the passage of NAFTA, since then a virtual free-fire zone has opened for critics, protectionists and nativists who seek to undermine bilateral relations. It is time to promote a more accurate picture: Mexico is contributing to U.S. economic strength, and vice versa; migrants who make the dangerous trek north are generally not looking for welfare, but for a job that Americans will not fill, and the U.S. economy would grind to a halt without them; Mexico is a true partner in addressing terrorism and security concerns. And the insatiable U.S. demand for drugs and limitless supply of weapons from the United States is making matters dramatically worse.
The next Mexican presidential elections will be held in 2018. The current president is unable by law to run for another term; his successor will be elected after his or her counterpart in the United States has been in office for a year and a half. To the extent the U.S. president is someone who stigmatizes Mexico and its people (whether in or outside the United States), pursues a bilateral agenda of rhetorical and physical division, and calls for the abrogation of NAFTA and isolation from America’s closest economic and security partners, Mexican presidential candidates will be forced to react in kind—for the dignity of their nation and their own political survival. As antibodies to the ongoing U.S. discourse continue to multiply in Mexico, equally strident political voices with a countervailing message will likely emerge south of the border in a quest for Los Pinos, the Mexican White House.
Having failed to learn the lessons of the past, the United States and Mexico would then stand ready to repeat it. This wholly avoidable outcome would be to the lasting detriment of both nations and to the consternation of a generation of policymakers, businesspeople and community leaders on both sides of the border who have worked to move beyond historical patterns and to chart a more productive, pragmatic and mutually advantageous future together. For both nations, a major strategic setback. This is not a drill. The stakes for the United States and Mexico really are that high.
Eric Farnsworth heads the Washington office of the Americas Society/Council of the Americas. He served at the State Department, USTR and the White House. He was a senior adviser in the office of the special envoy for the Americas from 1995 to 1998.
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