China’s Economic Reckoning
The Price of Failed Reforms
For most of the twentieth century, Mexico and the United States were distant neighbors. Obliviousness and neglect from the north was met with resentment and, at times, outright hostility from the south, leaving the two countries diplomatically detached. Yet as the twenty-first century approached, this wariness began to fade, replaced by cooperation and even something resembling friendship. The détente began in the early 1990s, when Mexican President Carlos Salinas de Gortari and U.S. President George H. W. Bush developed a shared economic vision, culminating in the signing of the North American Free Trade Agreement, the largest free-trade agreement in the world and the first to include countries with mature economies (the United States and Canada) and a country with a still emerging economy (Mexico). Bush’s successor, Bill Clinton, embraced the rapprochement, shepherding NAFTA through Congress and later rescuing Mexico from a financial crisis. And although Clinton’s successor, George W. Bush, failed in his attempt at comprehensive immigration reform, he succeeded in working with his Mexican counterparts, Vicente Fox and Felipe Calderón, to transform the U.S.-Mexican security relationship for the better. President Barack Obama reaffirmed and expanded bilateral cooperation by deepening the two countries’ economic integration and supporting Mexico’s efforts to establish the rule of law and improve the security of its citizens.
During the past 25 years, connections between the two countries have proliferated at the state and local levels as well. Governors have set up trade offices and sponsored repeated commercial visits. Law enforcement officers have trained together and conducted joint operations. Universities have initiated cross-border research projects and exchanges. Mayors have embraced sister cities and held joint events and conferences; San Diego and Tijuana even explored a shared bid for the 2024 Summer Olympics.
But that quarter century of partnership is now faltering, thanks to U.S. President Donald Trump’s overt hostility to Mexico and Mexicans. The invective began during Trump’s campaign, during which he called NAFTA “the worst trade deal in history” and claimed that Mexico was “killing us economically.” He attacked Mexican immigrants to the United States, painting them as “criminals” and “rapists” that steal jobs and threaten American lives. He pledged to establish a “deportation force” to rid the nation of millions of “criminal aliens.” And his bellowed promise to build a wall along the U.S.-Mexican border—and force Mexico to pay for it, no less—served as a frequent climax at his rallies, often eliciting the loudest cheers from his supporters.
Since Trump took office, his approach to Mexico has alternated between insincere flattery and in-your-face aggression. Even when talking up his “tremendous relations with” and “love” for Mexico, he has prioritized the border wall, bidding out the project and asking Congress for $1.6 billion to jump-start construction, while still maintaining that Mexico will somehow pay for it, ultimately. (So far, Congress has demurred.) On immigration, Trump has spared the so-called Dreamers—young people, mostly from Mexico, who were brought to the United States illegally when they were children—from his earlier threats to deport them. But he has also ordered the Department of Homeland Security to step up raids in immigrant communities and has lashed out at so-called sanctuary cities, which block their local law enforcement agencies from sharing information about residents’ immigration status with DHS. The Trump administration has also threatened to send anyone caught crossing the southern border illegally back to Mexico—regardless of their actual nationality. And Trump’s hatred of NAFTA has endured, although his threats to pull out of the deal altogether have been replaced by a plan to renegotiate its terms.
Faced with this unprecedented belligerence, Mexico has few options—and even fewer good ones. The best approach would be to avoid confronting Trump—not by capitulating to him but by going around him. To salvage the hard-won gains of the last two and a half decades, Mexico needs to venture outside the Beltway and deepen its already rich connections to U.S. states, municipalities, businesses, civic institutions, and communities. This approach is being pursued (with some early success) by the United States’ neighbor to the north, Canada. And it might work even better for Mexico, which has more grass-roots connections to American society than does Canada.
Indignation and anger over Trump’s rise have begun to reshape domestic politics in Mexico.
The about-face in Washington’s approach to Mexico is taking place at a time when Mexico has never been more important to the U.S. economy and to Americans themselves. Mexico provides a huge proportion of the vegetables on their tables, the parts in their cars, and the caregivers for their youngest and oldest citizens. NAFTA helped usher in this interdependence, influencing the way that thousands of companies buy, sell, and make things on both sides of the border. Trade in goods between the two countries skyrocketed, from around $135 billion in 1993 to over $520 billion in 2016, adjusting for inflation. Meanwhile, Mexican exporters came to prefer U.S. suppliers over all others, buying, on average, 40 percent of their inputs from the United States, compared with 25 percent from Canada and less than five percent each from Brazil, China, and the EU. Prior to NAFTA, that figure for the United States stood at just five percent. In that sense, U.S. trade with Mexico hasn’t “killed jobs,” as NAFTA’s critics argue; it has instead ramped up sales of U.S. goods south of the border that support some five million U.S.-based jobs.
Meanwhile, immigration has deepened interpersonal bonds between the citizens of the two countries. Some seven million Mexicans settled in the north between 1990 and 2007. That immigration wave has receded in recent years; since 2009, over 140,000 more Mexicans have left the United States than have come to it. But around 11 million still reside in the United States, in addition to nearly 25 million Americans of Mexican heritage. And the movement has gone both ways: over one million U.S. citizens currently make their homes in Mexico, the largest diaspora community of Americans anywhere in the world.
These ever more encompassing ties mean that Trump’s outbursts, threats, and vilification of Mexico have reverberated throughout the country’s economy, society, and politics. Mexican markets have taken the most immediate blow. The peso plummeted following Trump’s victory, falling further than any other emerging-market currency during the first quarter of 2017. Foreign investment also sank as Trump criticized companies, including Carrier and Ford, for moving jobs south of the border (or planning to) and the companies responded by postponing, scaling back, or canceling those plans. Overall foreign direct investment in the country fell by 20 percent in 2016 as Trump marched toward the GOP nomination, with the largest declines concentrated in trade-oriented sectors. After Trump’s victory in the general election, forecasts for Mexico’s 2017 economic performance turned pessimistic.
Recently, those losses have eased: once the perceived threat to NAFTA passed in April, the peso recovered and foreign direct investment began to flow again. Still, NAFTA’s future remains uncertain. And U.S. congressional proposals to create a new border adjustment tax (to be levied on imports from Mexico and elsewhere) and to dramatically lower U.S. corporate tax rates would threaten Mexico’s competitiveness and export-based economic model.
Meanwhile, Mexicans’ attitudes toward their powerful neighbor have swiftly changed as well; the United States has gone from paragon to pariah. The public’s ire has been reflected in the proliferation of Trump-inspired piñatas and luchadores (costumed professional wrestlers). Polls show that the number of Mexicans with negative views of the United States has tripled since the election; overall, Mexicans now feel more warmly toward Russia and Venezuela than toward the United States. In a recent Pew survey, Mexico ranked last among 37 nations in terms of public confidence in Trump.
Not only are fewer Mexicans immigrating to the United States these days, but even tourist numbers are down. According to the global research firm Tourism Economics, almost two million fewer Mexicans are currently planning to take an American vacation than were planning to at the same time last year, and the number of Mexicans who applied to enroll at schools in the University of California system this fall dropped by more than a third compared with last year.
Of course, nearly one in ten Mexican citizens already lives in the United States, and Trump’s rise has taken a terrible toll on many of them. Families of mixed immigration status, newly fearful of federal enforcement agents, have pulled their kids out of school, canceled medical appointments, and stopped going to local restaurants, grocery stores, and neighborhood events. This self-isolation is hollowing out once vibrant communities and has hurt the economies of many struggling U.S. towns.
Indignation and anger over Trump’s rise have begun to reshape domestic politics in Mexico, stirring up long-dormant nationalist and isolationist currents. Mexicans across the political spectrum were astonished and outraged when Mexican President Enrique Peña Nieto invited Trump to meet with him in Mexico City in August 2016, sparking a catastrophic slide in Peña Nieto’s approval ratings, from which he has yet to recover; in July, only 17 percent of Mexicans approved of his performance. As Mexico looks toward national and presidential elections in 2018, Trump has made it once again politically profitable for Mexican politicians to stand up to the United States. Today, Mexican senators display anti-Trump banners in their chamber and churn out numerous retaliatory and anti-American bills. Trump’s ascent has also emboldened Mexican protectionists, who are eager to turn back the clock to the pre-NAFTA era and recapture the profits they enjoyed when economic competition was more limited. Producers of aluminum, steel, cement, glass, and numerous other materials and goods could argue that if Washington can favor U.S. companies over foreign ones in some industries, then the Mexican government should do the same for Mexican firms.
The biggest political beneficiary of these trends has been the left-wing populist Andrés Manuel López Obrador, who is planning to run for president a third time next year. The day after Trump’s victory, López Obrador was filmed in front of a mural by the celebrated Mexican painter Diego Rivera assuring Mexicans that Mexico would remain a “free, independent nation”—“not a colony” and “not dependent on any foreign government.” (Peña Nieto limited his own response to a tweet congratulating Trump.) López Obrador’s approval ratings shot up, from 11 percent in September 2016 to 24 percent in November. In recent months, he has melded this appeal to Mexican sovereignty into his broader antiestablishment platform. He is now considered the front-runner in next year’s presidential race.
As other hopefuls announce their intentions, they, too, will undoubtedly promise a firmer hand with the bully to the north. Mexicans will elect not only the president but also more than 3,000 other officials next July, raising the possibility that nationalists could take power at all levels of Mexico’s government.
Meanwhile, the Peña Nieto administration has struggled to respond effectively to Trump and his provocations. It initially relied on the personal relationship that Trump’s son-in-law and adviser, Jared Kushner, and Luis Videgaray, now Mexico’s foreign minister, had built as they negotiated candidate Trump’s visit to Mexico in August 2016. But Mexican officials were blindsided when, five days before a scheduled one-on-one meeting between the two presidents in January, Trump took to Twitter to declare that Peña Nieto should not come to Washington unless he would agree to pay for the border wall. Peña Nieto, humiliated, canceled the trip.
Since that debacle, the Mexican government has recalibrated its approach. Without giving up entirely on the possibility of winning over White House advisers and members of Trump’s cabinet, it has focused on reaching out to other potential allies. These include governors and other elected officials in the 23 U.S. states for whom Mexico is their largest or second-largest export market, the hundreds of thousands of American farmers who sell over $18 billion worth of goods to Mexico every year, those small and medium-sized U.S. exporters that are more likely to send their wares to Mexico than anywhere else in the world, and large multinationals catering to Mexican consumers. With the help of 50 consular offices in the United States and the assistance of Mexican business elites, Peña Nieto’s government has begun to work the U.S. system, courting all levels of government and seeking out potential grass-roots allies.
This ground game is in its very early stages and is more limited and ad hoc than the one undertaken by the United States’ other neighbor, Canada. Yet it is already showing some signs of promise. A bipartisan group of U.S. senators, including the Republican heavyweights John Cornyn of Texas, John McCain of Arizona, and Marco Rubio of Florida and Democrats Ben Cardin of Maryland, Dick Durbin of Illinois, and Bob Menendez of New Jersey, have introduced a resolution reaffirming the importance of bilateral cooperation in an effort to protect the progress made in U.S.-Mexican relations over the past 25 years. Members of the U.S. House of Representatives and governors and mayors across the United States are also awakening to the importance of Mexico to their constituents and speaking out in support of the relationship. Within the U.S. business community, chief executives such as GE’s Jeff Immelt and Facebook’s Mark Zuckerberg have condemned Trump’s bashing of Mexico and immigrants. Meanwhile, the U.S. Chamber of Commerce and other associations have thrown their support and lobbying dollars behind the defense of NAFTA.
Trump's approach to Mexico has alternated between insincere flattery and in-your-face aggression.
But Mexico is also hedging its bets by working on a Plan B. It remains committed to the Trans-Pacific Partnership and, in both May and July, sent trade envoys to meet with representatives from the other ten remaining signatory countries to push forward with the trade agreement despite Trump’s rejection of it. Mexico is also holding talks with the EU to update and modernize a free-trade agreement that the two parties made in 2000. And it is working to expand its commercial ties with Argentina, Brazil, China, and countries in the Middle East. Although the United States will remain Mexico’s largest market, such moves can strengthen the Mexicans’ negotiating hand with Washington and provide some insurance in case the relationship deteriorates even further.
So far, Mexico’s main aim has been simply to protect the pre-Trump status quo as much as possible. Yet with the entire U.S.-Mexican relationship in flux, there is now an opportunity to think big and fundamentally reshape North America’s future.
Making real progress would oblige Americans to abandon their fantasies of walling themselves off from Mexico and would require Mexicans to move past their outrage over Trump and ignore the siren song of nationalism. Only then would a new economic deal between Mexico and the United States be able to go beyond merely tinkering with NAFTA and instead create a more innovative, better-functioning border that speeds the flow of goods, services, ideas, and people. Only then could the two countries together confront the common threats of drug trafficking, organized crime, terrorism, natural disasters, health epidemics, and cyberattacks. Only then could they invest in the work forces that span the border. And only then could they expand their educational exchanges, vocational training, and certification for North American workers and set immigration rules that recognize that freer movement strengthens families, communities, and economies that increasingly depend on cross-border assembly lines and supply chains.
Of course, that vision is anathema to many of Trump’s core supporters and sits uneasily with Trump’s “America first” protectionism. But Mexico will continue to find a more receptive audience outside Washington. Roads, bridges, railways, aquifers, and other vital elements of the border area can be studied, planned, and promoted by U.S. regional leaders and funded by local public-private partnerships. Local utilities can invest in and prepare for cross-border grids. Universities and community colleges can partner with one another and with companies to train future workers. Licenses and certifications, which are always controlled by states and professional associations, can be expanded to incorporate skilled practitioners on both sides of the border. And police departments, prosecutors, and public defenders can work together across the border to improve safety and security in both countries. Mexico would do well to emulate U.S.-Canadian regional agreements, such as the one that created the Pacific NorthWest Economic Region, which allows five U.S. states and five Canadian provinces to coordinate on issues including infrastructure, energy, the environment, disaster resilience, border management, and education.
The country has already started to adopt this kind of approach, but it must ramp up its efforts by reaching out to city councils and state legislators, community colleges and universities, family-owned farms and businesses, and the administrators of public-private partnerships at the local and state levels. And it must improve its relationship with the millions of Mexicans and Mexican Americans who live north of the border—a diaspora that has been neglected by its homeland for decades. If executed well, such a strategy would deepen day-to-day integration and also create a massive lobby to push Washington—even Trump’s Washington—toward partnership and away from isolation.
Thanks to the populist wave that swept Trump into office, Mexico has been forced to become the mature partner in the U.S.-Mexican relationship. The country’s leaders must ignore Trump’s petty insults, resist the temptation to act in kind, and put forward a positive agenda to more receptive audiences north of the border. If Mexico can rise to the occasion, then the carefully cultivated friendship of the past quarter century can be not only salvaged but even deepened.