I was in Mexico yesterday seeing the country’s president, foreign minister and finance minister and addressing a convention of bankers. The only subjects anyone is interested in are the future of Nafta and US-Mexican relations.
I came to Mexico from Beijing and so was able to report that there was no greater strategic gift the US could give China than to abrogate Nafta and rupture the North American community.
In narrow commercial terms right now, Mexican goods enter the US on a preferred basis relative to Asian goods. This preference would disappear with suspension of the free trade agreement. Furthermore, about 70 per cent of Mexican exports are of goods that are not finished but are inputs to further US production. Anything that hurts Mexico therefore also hurts us in global economic competition with China.
There is another, even more important, strategic dimension. As illustrated by the more than $60bn China has poured into Hugo Chavez’s Venezuela, Beijing would regard opportunities to ally with a hard left anti-American government as strategic windfalls. What better than a country of 130m people with a 2,000-mile border with the US? Every Mexican with whom I spoke said that the risk of their country electing a Chavez-like government had gone way up in recent months on account of American disrespect and truculence.
China apart, Nafta strengthens the US economy. Its tariffs without the agreement would average less than 3 per cent, so repeal would not greatly reduce protection. Indeed, by undermining the peso, US challenges to Nafta have led to an effective 10-15 per cent subsidy on all Mexican goods. There is the further point that the US competes more effectively globally with access to low-cost Mexican inputs. More than two-thirds of our imports from Mexico are inputs to further US processing.
There is a silver lining in all the fuss over Nafta — it needs updating. Digital trade didn’t exist in 1993. Thinking has shifted on the need for trade agreements to be in worker interests. This means more emphasis on labour standards and more need to ensure that dispute settlement systems do not overly empower corporate interests. Most important, with more competition from Asia and with the increased sophistication of the Mexican economy, there is a strong case for strengthened rules of origin that enhance North American manufacturing.
Changes along these lines may have an America-first aspect but they are also in Mexico s interest. They are the right way forward.
It is also essential that the US and Mexico find a way forward on immigration. A wall is a 19th-century response to a 21st-century concern. I’m told that most illegal immigration does not take place through people crossing open borders in the desert — the only thing that a wall could address. Rather, it takes place through illegal entry at legal checkpoints as people are smuggled across in freight containers and the like, which will be unaffected by a wall. Technology, data science, enhanced collaboration, and co-operation with respect to Central America are much better ways to resist illegal immigration flows. They are also much more likely to strengthen our alliance with our most populous neighbour.