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Feature 020413 Montealegre

Monday, February 4, 2013

 

For Future Prosperity the USA needs Mexico to look Northward

 

By Oscar Montealegre

 

It is not common knowledge that Mexico is the United States’ third largest trading partner, behind Canada and China. Every day at least a billion dollars of goods flow across the border. Yet, Mexico is frequently negatively caricaturized, primarily with images of migrants illegally crossing the border into the U.S. and stealing U.S. jobs. Instead of viewing Mexico as a valuable partner that can benefit the U.S. in many facets, it is perceived as a liability, a region that cultivates corruption and violence, and is the root of the current U.S. immigration ‘problem’ that has spurred controversial rogue measures like Arizona’s SB 1070.

 

In matters of foreign policy, Mexico is an afterthought—our attention and resources are diverted to the Middle East or to grand strategies based on ‘pivoting’ our geopolitical and economical capacity towards Asia. With the U.S. economy performing at a snail-like pace, an emphasis on exports has reemerged, but the bulk of the exporting narrative revolves around Asia. This is unfortunate, because our neighbor to the south has quietly positioned itself to be the next jewel in the emerging markets portfolio.

 

For example, Market Watch (a Wall Street Journal subsidiary) recently published a bullish article on Mexico with the following headline: “Mexico: Investor’s New China.” The Economist published an opinion piece titled “The Global Mexican: Mexico is open for business,” highlighting Mexican companies that are investing locally and in the U.S., and arguing that Mexico is fertile ground for more investment, especially in the manufacturing sector. And according to The Financial Times, BRIC countries (Brazil, Russia, India, and China) are no longer the flavor of the month; Mexico is now taking over that distinction.

 

In essence, immigration and the drug trade will no longer anchor the relationship between the U.S. and Mexico; instead, economics, finance, trade, and commerce will dictate the terms between the neighboring countries.

 

However, in order to move forward, undoubtedly the elephant in the room must be addressed promptly. Immigration—although the topic is polarizing, it is imperative that President Obama tackles this issue steadfastly and in the most bipartisan manner possible. It can be seen as one-sided that the onus is on the U.S., while Mexico gets carte blanche in its contradictory policy with their border patrol methods towards Central American migrants entering through Guatemala. True, but when you are the world’s superpower not all is fair in love and war.

 

Fortifying borders, beefing up security, creating walls that divide the two countries that mimic uncomfortable parallels between Israel and Palestine, should not be the main focus. With the world becoming more flat, the emphasis in tackling the immigration quagmire should be trade and commerce. Engagement, interaction, and the exchange of ideas should be the picture we want to paint. We should not foster the argument that an open border policy and a global business paradigm will compromise American jobs and bite into our distinctive American competitiveness.

 

The reason Mexicans cross the border illegally into the U.S. is because of one desire: opportunity. If Mexico develops a lasting robust economy, Mexicans will no longer desire to come to the U.S. in such droves. According to Nelson Balido, President of the Border Trade Alliance, this is already occurring: “Mexico’s economy has, for the most part, weathered the worst of the economic downturn, meaning that more young Mexicans can reasonably seek and find work in their patria rather than heading north.”

 

A strong American economy is extremely favorable for Mexico. Turn the tables a bit, and ponder what it means for the U.S. when a Mexican economy is robust and stable—more export possibilities for the U.S.; more investment from the U.S. to Mexico, and vice versa, creating a win-win situation; and less need for Mexicans to leave their homeland and look for jobs in the U.S.

 

Sounds familiar? The characteristics of many vibrant emerging markets such as China, Indonesia, Brazil, and India are occurring right next door. Why go East when we can venture South? Or perhaps, approach both simultaneously. According to a Nomura Equity Research report, Mexico in the next decade will surpass Brazil in being Latin America’s largest economy. When comparing Mexico on a GDP per capita basis, Mexico happens to be less developed than Argentina, Chile, and Brazil. This might sound negative, but in actuality it should be music to investors’ ears: more catching up for Mexico, meaning more investment and business activity.

 

Moreover, Mexico’s economy is highly interconnected with the U.S. economy. Currently, Mexico sends almost 80 percent of its exports to the U.S., and roughly 50 percent of its imports are from the U.S. Manufacturing costs in Mexico are once again competitive compared to China. Ten years ago, China’s labor costs were four times cheaper than Mexico, but with wages in China inflating, Mexico now has a comparative advantage because of its proximity to the U.S. Shipping cargo across the Pacific can be more expensive and arduous, versus trucking cargo from northern Mexico and delivering to Wisconsin in a matter of days.

 

However if the U.S. administration continues to close the borders, the exchange of commerce between Mexico and the U.S. will suffer due to setbacks of just getting goods to cross the border. Luckily, NAFTA is already in place, but both parties (and Canada) can do more to cut red tape and streamline the movement of trade and commerce.

 

Currently, Mexico is entering a perfect demographic storm. It has a young and growing population, which is expected to last for several decades. Mexico is no longer only looking north for economic advancement, as many of their multinational companies, such as Bimbo and Cemex, are currently doing business in Latin America and Spain. Mexico’s stock market is currently in talks to integrate their stock exchange with the MILA group—the established stock exchanges between Colombia, Peru, and Chile.

 

The U.S. must act soon before it arrives at the party too late. It is in the U.S.’s interests to have Mexico think northward first, and then the other regions second, but the opposite is developing.

 

The interconnectedness between both countries strongly conveys why the dialogue should revolve around bilateral trade and commerce agendas. For Mexico, 30 percent of GDP is dependent on exports, and 80 percent of exports are tagged to the U.S. Most importantly, one of ten Mexicans lives in the U.S., accounting for nearly 12 million Mexicans that consider the U.S. their current residence. Add in their descendants, and approximately 33 million Mexicans and Mexican-Americans reside in the U.S. Let’s put this figure in perspective: Venezuela has a population of 29 million; Greece, 11 million; and Canada, 34 million. Essentially we have a ‘country’ within a country—the beauty of America—but it must be embraced instead of shunned or ignored. Economically, it is a plus for Mexico, because there is a market for Mexican products; and it is also a plus for the U.S. in many areas, including soft power, diversity, direct linkages to Mexico and Latin America. A cadre of American-born and educated human capital are able to cross cultures into Mexico and Latin America to conduct business and politics.

 

The presidential election emphasized that Latinos in the U.S. are now a vital demographic when concerning local, congressional, and presidential elections. It makes practical sense for the U.S. (regardless of political party) to consider Mexico the front door to Central and South America. The most recent U.S. Census discovered that the Latino population in the United States: 1) now tops 50 million; 2) has accounted for more than half of America’s 23.7 million population increase in the last decade; 3) grew by 43 percent in the last decade; and 4) now accounts for about 1 out of 6 Americans. Latinos are now the largest minority group in the United States. These are extraordinary figures that should be leveraged into something positive.

 

President Obama cannot respond by merely paying lip service to the Latino community. Latino voters have overwhelmingly backed President Obama for two elections now, but no favor is done with complete altruism. Surprisingly, during President Obama’s first term there were 30 percent more deportations than during George W. Bush’s second term. Yet there is hope that President Obama will fix the broken system with a more humane approach, contrary to laws that are being pushed and backed by the Republican Party in Arizona, Georgia, and Alabama. Some may ask—what does this have to do with Mexico, or even Latin America? It is all about messages, and in the next four years the President must use the available tools to solidify relationships with partners, paving the road for more trade and commerce, which ultimately will further strengthen the U.S. economy. What happens in the U.S. means a lot to many countries, and immigration is perhaps one of the most important matters in Mexico, Central, and South America.

 

The U.S. must first focus on rebranding its relationship with Mexico. President Obama and Mexican President Peña Nieto need to formulate a new agenda between the two countries—one that resonates with the 21st century, linking the two countries economically; where the U.S. can envision Mexico as a vibrant emerging market in its own backyard. Obstacles do exist, like the current Mexican drug war and political corruption. But don’t India and China have corruption problems as well?

 

A page will be turned in the next four years. The question remains if progress, commonalities, and cooperation will be spearheaded in unison by both countries’ leaders.

 

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This article, titled "U.S.-Mexico Relations: Love Thy Neighbor," was originally published in the January/February print edition of The Diplomatic Courier, and on its Internet edition on January 24, 2013.  The Diplomatic Courier: A Global Affairs Magazine, Washington, DC.  Republished with permission.

 

Oscar Montealegre holds an MA degree in International Relations from the University of Westminster in London, and a BA degree in Journalism from California State University-Long Beach.  Currently he is completing a Certificate in International Trade and Commerce at UCLA.  Oscar is licensed in the U.S. financial industry and currently works as an Investment Advisor, specializing in Latin American markets.  He is the Director of Business Development for a mid-level company in Los Angeles. His Colombian background has inspired him to travel to South America extensively with the purpose of assessing the economic dynamics of the region.


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