Page 56 - STRATEGY Magazine

SPECIAL INSIGHT: U.S.—MEXICO RELATIONS
President of Mexico Enrique Peña Nieto and then-U.S. Republican presidential candidate Donald Trump during a meeting at Los Piños on August 31, 2016, in México City, Mexico.
An Endangered Partnership:
Collaboration and Compromise on the Border
After more than two decades of intensifying collaboration, the United States and Mexico face uncertainty and tension. This is no small matter—the countries have become increasingly interdependent in an age of constant change, in which collaboration frequently results in a better return on investment.
Are Mexico and the United States partners or competi- tors? The new U.S. administra- tion knows what it thinks—it has recently depicted Mexico as an oppo- nent that threatens both U.S. businesses and workers. Yet U.S.–Mexico relations are of vital interest to both nations. In recent decades, the countries have taken numerous steps to increase coordination in sectors ranging from trade to ecology, and this makes sense: they share a 2,000- mile border. Yet in the coming years, it is likely that the relationship will be critical- ly re-examined by both sides. As pundits and politicians have already discovered, there is much to explore.
THE OPEN DOOR
For decades after the Mexican Revolution, which ended in 1920, Mexico pursued a strictly protectionist economic policy, one that remained in place until the 1980s. However, during the 1960s, the country adopted reforms allowing for the creation of foreign-owned assembly plants, or ma- quiladoras. These plants avoided tariffs on imported raw materials and intermedi-
ary goods as long as they exported a signif- icant portion of their product—usually to the United States, home of many maqui- ladora parent companies.
In the early to mid-1980s, Mexico initiat- ed a series of market reforms to stimulate its economy, including signing more free trade agreements than any nation in the world. As the end of the decade neared, both the United States and Mexico imple- mented relatively low tariffs to encourage trade and cooperation. Then, in 1994, the United States, Mexico, and Canada signed NAFTA. This agreement provided for the elimination of tariffs on a wide variety of goods and has led to increased coordina- tion between U.S. and Mexican corpora- tions.
THE NEED FOR NEW LABELS
Today, thanks in part to NAFTA, Mexico and the United States boast one of the world’s strongest and most integrated eco- nomic relationships. The United States is Mexico’s greatest merchandise trading partner, and Mexico ranks below only Canada and China for the United States. In 2016, the United States sent US$231
billion in exports over the southern bor- der, while Mexico exported US$294.2 bil- lion north. Both countries have seen in- creases above 400 percent—Mexico nearly 600 percent—in these numbers since 1994. And it is worth pointing out that a small but significant trade in services also runs between the two nations; the Unit- ed States runs a modest trade surplus of US$7.6 billion in this sector.
These numbers, while impressive, do not tell the whole story. The Wilson Center’s Mexico Institute sought to articulate just how trade between the two countries oc- curs. The evidence they found points to increased cooperation between U.S. and Mexican companies, rather than unfet- tered competition. Instead, as many have noted over the years, “they build things together.” Manuel Sánchez, Deputy Gov- ernor of Banco de México, notes that the industrial and manufacturing outputs of the two countries are highly correlated. “Furthermore,” he adds, “causation runs from the larger country to the smaller one. Inevitably, U.S. manufacturing fra- gility translates into a slower sector in Mexico.”
54 STRATEGY
Credit: Xinhua/Alamy Stock Photo