Understanding Mexico’s current challenges
As the Trump administration begins to identify its first priorities, Mexico will be entering into a presidential election cycle for its summer 2018 contest, which will add complexity to government-to-government talks. Only about 25 percent of Mexicans approve of the job being done by President Enrique Peña Nieto, an unprecedented low for a government with two years left in office. The public is highly dissatisfied with government, fueled in part by the economic downturn, high-profile cases of corruption and impunity, and persistent insecurity.
Mexico’s economic growth has been in steady decline in recent years. The United States is Mexico’s largest export market, and demand in the U.S. market has slowed since the 2008 financial crisis. Low oil prices also have had a negative effect on the Mexican economy given its role as an energy supplier and on the federal budget as close to a third of the public monies derive from oil revenues. Corruption continues to erode public confidence in the Mexican political system, as it has in other countries throughout Latin America in recent years. It has also roused a private sector that feels squeezed between increased taxation pressure and the costs of corruption. Cartel-fueled violence and petty street crime continues throughout the country, as promises by the Peña Nieto government to reduce violence levels have not yet been fulfilled.
Mexico’s overall trajectory of reform
It is important to recognize, however, that the current challenges facing Mexico do not occur in a vacuum and Mexico´s overall trajectory is one of dramatic reform of the state. It would be hard to find a nation-state elsewhere in the world that has undergone a political and economic modernization as fast and deep as Mexico, particularly over the past two decades.
On the political front, Mexico struggled during the twentieth century to emerge as a multiparty democracy. The political system that emerged from the Mexican Revolution in 1910–1920 was dominated by the Institutional Revolutionary Party (PRI), which held presidential power continuously for 71 years. Its hegemony began to loosen when the left-of-center Revolutionary Democratic Party (PRD) won control of Mexico City (Cuauhtémoc Cárdenas) in 1997—a post that the PRD has held continuously since. Then, the presidential election victory of the National Action Party (PAN) in 2000 (Vicente Fox) and 2006 (Felipe Calderón) and then the return to PRI-rule in 2012 (Peña Nieto) defied those who argued that a peaceful transfer of power from one party to another in Mexico was beyond reach. There have been other encouraging signs as well. Mexico’s Congress is no longer the rubber stamp it once was. And, in 2012, Mexico’s main political parties passed a reform platform under the “Pact for Mexico” focused on much-needed internal reforms including in the areas of education, labor, the electoral system, fiscal policy, telecommunications, and the historic opening of the energy sector to private investment. Overall, Mexico is a more democratic country now than it was 20 years ago, although with all of the fits and starts that comes with it.
A failure by the Mexican government to fundamentally shift the momentum against the cartels and against corrupt practices in the public sector will further erode confidence in institutions and governance.
Mexico’s economy has also been dramatically transformed over this same period. Prior to the 1990s, Mexico’s economy was largely closed to imports, including from the United States. The North American Free Trade Agreement (NAFTA) played a transformative and positive role in opening up the Mexican economy, creating jobs, and in the expansion of Mexico’s middle class. Mexico now has 10 free trade agreements involving 45 countries and a host of other investment deals involving another 33. On economic policy in recent years, Mexico has moved to increase competition in telecommunications as well as undertaking the historic opening of the energy sector to private investment following the nationalization if the 1930s.
Stalled progress and a critical window of opportunity
Despite the fast-forward transformation of the economy and political system, the reform process for law enforcement and the judiciary is often described by Mexican analysts, foreign investors, and more importantly by public opinion as more disappointing. Despite numerous restructurings of law enforcement, insecurity prevails in many parts of the country. The landmark judicial reform passed in 2008 that is transforming the judiciary from a closed inquisitorial system toward an adversarial model is yet to be fully implemented. The slow progress on rule-of-law issues has created enormous opportunity costs for Mexico in terms of trade and investment, and public confidence in institutions remains low.
The next two years in Mexico are a critically important window for reform implementation. Moreover, the population’s perception of the success of implementation may be even more important than formal passage of reform bills into law. Justice reform implementation amid continuing impunity for the political class will not be perceived as a real change. Energy and telecommunications reforms that do not deliver benefits to average Mexicans are not likely to be seen as transformative, even though the rules on paper are a dramatic departure from the status quo ante. A failure by the Mexican government to fundamentally shift the momentum against the cartels and against corrupt practices in the public sector will further erode confidence in institutions and governance. The opportunity to strengthen the Mexican state and consolidate the reforms rests in the hands of the Mexican political class.
Much of Latin America has seen the winds of political change blowing through the region in the past two years. For Mexico, it may well be that public perception of the political class and its actions in the next two years will influence how strong the winds of change blow in Mexico in 2018. This is of critical importance to the United States, because political uncertainty on the southern U.S. border could impact bilateral cooperation across the range of issues in the relationship.
The U.S.-Mexico relationship
As one of only two land neighbors, Mexico is a critical partner of the United States on both national security and economic security. Despite this fact, U.S. policy toward Mexico often lacks a “big-think” vision that recognizes both the breadth and depth of issues that matter greatly to the American people. The relationship often gets out of balance and ends up in a reactive, tit-for-tat cycle. This is deeply counterproductive and must be avoided if for no other reason than to ensure that the two governments deliver results.
The priorities outlined by President-elect Trump during the campaign, including immigration reform and border security improvements, suggest a quick focus on Mexico. Done carefully, an immigration reform can be a win-win, and border security upgrades would include not only more physical barriers, but stepped-up cooperation and a focus on border infrastructure. Any border security measures must take into account that US$2.4 billion worth of goods cross the United States’ northern and southern borders every day. The goal should be to balance security challenges with the needs of cross-border commerce that are fundamental to the U.S. economy.
In fact, the Trump administration has a great opportunity to put serious attention on border infrastructure, which is a long-neglected issue and a drag on U.S. competitiveness. Mexican and Canadian leaders have also made infrastructure a priority and cooperation in this area could present an early win all around. The three countries need to work together to prioritize what new points of entry are needed and also on how to fund new projects. Recent estimates suggest that border infrastructure improvements in North America could increase U.S. GDP by 1 percentage point, or about US$220 billion a year, creating new jobs along with it.
The Trump campaign emphasized the need for the United States to get better deals on trade. If it pursues trade discussions, they must be framed by the reality that the U.S. economic relationship with Mexico is not a zero-sum game. U.S. companies and the products they produce are competitive in the global economy in part thanks to imported components from Mexico and Canada. In fact, the private sectors in the United States and Mexico and Canada not only trade with each other, but make products together with supply chains that are deeply integrated. Those ties have made the United States more competitive in the global marketplace, and far from being a net liability, are an asset.
The starting point of any discussions should also recognize that NAFTA dramatically increased U.S. exports to Mexico. In 1992, prior to NAFTA, U.S. exports to Mexico totaled about US$42 billion. In 2015, the United States exported goods and services valued at US$267 billion, making it the United States’ second-largest export market and the source of millions of U.S. jobs. The total two-way trade in goods and services in 2015 was over US$580 billion.
While it is not clear what the priorities the administration would have in a NAFTA discussion (Mexico gave up more on tariffs than did the United States in 1993), it is important to recognize that all parties agree that NAFTA could be looked at with modern eyes and that there is an opportunity to do this in a win-win-win fashion. In fact, the three countries already began to modernize the deal, under the talks for the now-stalled Trans Pacific Partnership (TPP). TPP talks included Canada and Mexico and all sides agreed to add new labor and environment provisions, as well as subjecting them to dispute settlement mechanisms. Additional low-hanging fruit of a NAFTA discussion could include issues as mundane as visa categories—occupations that exist now in the technology sector, for example, did not exist 22 years ago. When NAFTA was conceived, the internet did not exist. New rules are needed for sectors like e-commerce. Mexico’s energy sector was not open to private investment when NAFTA was negotiated. The three countries now have the opportunity to work together toward North American energy independence with all of the positive geostrategic implications that could have.
Any border security measures must take into account that US$2.4 billion worth of goods cross the United States’ northern and southern borders every day.
Done properly, both the United States and Mexico (and Canada) could find benefits from the process of updating the trade relationship and addressing issues including the skills gap across the continent, particularly in manufacturing. For those that have lost jobs due to globalization, the three countries could revisit adjustment assistance and job-training programs to help our three societies better adapt and ensure that skills match jobs already available. According to recent estimates, the number of manufacturing jobs unfilled in the United States because of a skills gap numbers in the millions. North America has the opportunity to tackle these issues as allies, not competitors.
Further, Mexico’s prosperity is in the interest of the United States. A stronger Mexican economy means fewer Mexicans will leave their homes seeking opportunity in the United States. (Net immigration flows from Mexico are already less than zero, according to a 2015 Pew study.) Strong growth and job creation in Mexico also spur the expansion of Mexico’s middle class and make Mexico a better partner as citizens’ demands, for improved security and rule of law for example, dovetail with U.S. security interests.
Outside of the economic relationship, the United States has a direct stake in Mexico’s success in strengthening its security and rule of law. The U.S. Mérida Initiative was conceived to support implementation of Mexico´s rule-of-law reforms, recognizing the fundamental importance of working with Mexico to address organized crime, violence, and impunity and its effects in both countries. There is much more that could be done to weaken the influence of the cartels responsible for exporting drugs into the United States, but success will depend primarily on U.S.-Mexican intelligence and law enforcement partnerships and the mutual sharing of information. That is, success in this area will center around trust and would be at risk in a climate of confrontation.
Both Mexico and the U.S.-Mexico relationship stand at a crossroads. With thought and care, the relationship could enhance both countries’ security and prosperity in the years ahead. Handled badly, the outcome would be mutually destructive. The stakeholders in the U.S.-Mexico relationship include not only the federal governments, but the private sectors, state and local governments, millions of workers whose jobs depend on trade, and millions of citizens who are involved in daily interactions with their families or business partners across the border. It is critically important for both sides to get this right, as the downside risks are too great not to.
Kimberly Breier is the Deputy Director, Americas Program; Director, U.S.-Mexico Futures Initiative at Center for Strategic and International Studies.