Why North America Matters

 by Matt Rooney

shutterstock_222561730The Bush Institute is launching a North America Competitiveness Initiative.  And while that is a complex title, the goals are simple: We want North America’s economy to remain a global powerhouse.

Through increased economic integration among the U.S., Canada, and Mexico, the US economy can be strengthened with opportunities created across the continent.  This will position the U.S. to better compete in a global economy.  To lead in the 21st century, we must look objectively at our strengths and weaknesses and work together to stay ahead.

A piece by our Director of Economic Growth at the Bush Institute, Matt Rooney, ran yesterday in the Points section of the Dallas Morning News.  Below it outlines why we’re pursuing this important work.

Why North America Matters

Americans can agree that the United States is geographically located on the continent of North America, and that Canada is to our north and Mexico to our south. Beyond that, agreement seems to be breaking down among many about the value of North America.

Some even seem to think it would be a good idea to wall ourselves off from our North American neighbors, and that doing so would make us more prosperous and secure.

But this kind of thinking ignores the numerous benefits to the United States of our geographical location. In fact, most of what we think we know about Canada and Mexico and our relationships with them is wrong. Even further, any move to build higher barriers to the movement of trade, investment, ideas and — yes — people in North America would make Americans less prosperous and less secure.

The key to the prosperity and security of the American people lies in a closer North American economic relationship — in embracing the de facto North American community that has long existed and shaping it to ensure that it continues to enhance our security and prosperity.

Former President George W. Bush’s commitment to raising awareness of North America’s importance to the United States begins with the conviction that this is not a theoretical proposition. As the United States prepares to implement the Trans Pacific Partnership, recommitting to a strong North America will be crucial to our ability to compete and thrive in this emerging global context.

Criticism of North America as an economic entity seems rooted in the 22-year-old North American Free Trade Agreement, the trilateral pact that created a regional trade bloc that allows freer flow of goods and services. But the fact is that economic integration predated NAFTA by decades.

It’s just one of several NAFTA-related misconceptions that should be dispelled as we identify ways of making North America an even stronger force in the world economy:

Myth No. 1: America’s culture and identity are disappearing as we are forced into a homogeneous North America.

Absolutely not. Far from being homogenous, North America is a community of three nations where distinct peoples have come together around their respective social and cultural traditions.

Canadians remain proud of their strong English- or French-speaking communities who live alongside the First Nations. They play hockey, eat poutine and beaver tails and find ways to enjoy the cold. Mexicans are proud of their tradition of mestizaje, a blending of indigenous and Spanish ethnic strains; they play soccer, eat tacos and enjoy the beach. And Americans continue as a “melting pot” of indigenous and immigrant stocks; we play football, eat hamburgers and embrace our expansive outdoors.

These unique histories have produced three very strong national identities that, if anything, have grown stronger over the years, not weaker.

Myth No. 2: There is a secret conspiracy afoot to abandon the Constitution and fold the United States into some sort of North American union.

This is an especially silly one. North America is a community of three sovereign — and very differently constructed — states. We have our Jeffersonian democracy, with three co-equal branches of government, a strong tradition of civil engagement and relatively weak political parties. Canada’s parliamentary system emerged from the British tradition, with relatively strong parties and provinces. Mexico’s political history has produced a strong presidency with strong political parties and relatively weak states. As unique as these three political traditions are, we are all representative democracies with federal systems.

It is true that this community of sovereign nation-states is also a highly integrated regional economy, a process that evolved over many decades.

There was the Canada-U.S. Free Trade Agreement of 1987, and there was the Canada-U.S. Automotive Products Trade Agreement of 1965. Before that, there was the bracero program that — not without controversy — brought hundreds of thousands of Mexican workers to support agricultural production and railroad maintenance in the United States from the 1940s into the early 1960s.

And long before that, we had free trade between the U.S. and Canada for a number of years under the Reciprocity Treaty of 1855, while California, Nevada, Arizona, New Mexico, Texas and parts of Wyoming, Colorado, Kansas and Oklahoma were once of part of Mexico.

NAFTA merely codified this integration and set rules that protected important U.S. equities, such as intellectual property and labor and environmental standards. It did not begin the integration of the regional economy.

It is worth noting that NAFTA is a treaty, which is a legal instrument among sovereign states. Unlike the European Union or MercoSur, South America’s trading bloc, none of the NAFTA parties gave up one iota of their sovereignty when they entered into it.

To the contrary, as with any treaty, NAFTA is an expression of our sovereignty, not a derogation from it. Moreover, when we look at the EU today, with its top-down approach and its cumbersome structure of shared political organizations, it is clear that not taking this route is one of NAFTA’s greatest strengths.

Myth No. 3: Mexico and Canada ‘won’ the NAFTA arrangement by taking advantage of the United States.

NAFTA was a bold initiative that was politically costly for all three governments, and all three achieved important national objectives.

Canada had to overcome deep reservations among many Canadians about their ability to compete with Americans, as well as fear of Canadian jobs being lost to both Mexico and the United States. We all remember the debate in our country about the “giant sucking sound,” and many Americans today believe that the United States lost jobs following NAFTA.

It’s not true. Total private employment in the United States rose from 90 million when NAFTA came into force, to 112 million on the eve of 9/11, to 116 million just before the recession of 2008, to 120 million now. That’s a 30 percent increase. In fact, all three countries have added jobs since NAFTA was enacted.

In terms of risk, Mexico was perhaps boldest of the three nations. Entering into NAFTA required it to abandon decades of economic autarky, opening Mexico’s financial services, telecommunications, broadcasting, petroleum and electricity sectors.

This opening of economic opportunity was a vast expansion of human freedom for over 100 million Mexicans and supported the emergence of a broad Mexican middle class. Mexico’s per capita GDP has nearly doubled, with the important side effect of reducing net migration from Mexico to the United States to essentially zero.

NAFTA certainly resulted in significant changes in the structure of production — what gets made, where and by whom — in all three countries. But its net effect has been to secure jobs in traditional manufacturing, including in America, that otherwise would have been lost to competition from Asia.

By engaging in this process, the United States also arguably freed up economic capacity — financial, intellectual, entrepreneurial, and in terms of labor availability — that facilitated technological innovation and helped produce the internet and mobile computing.

In fact, the economic integration of North America has reached the point where we shouldn’t really think of it in terms of imports and exports between our three nations anymore. We make things together in North America and we sell them to the world. It is the very existence of the North American supply chains — their flexibility and diversity — that makes our products globally competitive.

What we think of as an “American” car in fact crosses one or both of our borders five or six times before it reaches the showroom. If not for our ability to source components flexibly across North America and the world, that vehicle would be priced out of a global market where our Asian and European competitors use similar supply chains to manage costs.

Consider also that, of every dollar of goods we import from Mexico, 40 cents’ worth originated in the United States; for Canada, the figure is 25 cents. For China, the figure is four cents for every dollar of imported goods. This means that, as we produce and export, we are using imports from our North American partners that in turn include American goods and services.

Consider this: An integrated supply chain is why there is still such a thing as an American car. Or, for that matter, American kitchen appliances, heating/cooling units, machine tools, airplanes or tractors.

Myth No. 4: Immigration associated with free trade is importing unfamiliar and foreign influences that are making our country unrecognizable.

North America is, and has always been, a single human community. After all, we all play baseball. Far too much has been said about the 11 million immigrants living in our country, many of them Mexican, without appropriate legal status. But we have not heard enough about the similarly large number of fully documented immigrants, and all that these immigrant communities contribute to our society and culture — not to mention their role in entrepreneurship and innovation.

Immigrants all pay property taxes, which fund public school systems that might not benefit them. They also pay sales taxes, and most pay into Social Security and Medicare without any hope of drawing those benefits in the future — a direct subsidy to our retired parents and grandparents.

Almost nothing is said about the 1 million Americans who live in Mexico without legal status and the millions of American tourists, students and businesspeople who travel, study and work there every year. Migration between the U.S. and Canada is less controversial, perhaps, but millions of Canadians travel to the United States and maintain part-time residences here. Many more have American citizenship, meaning that they pay U.S. taxes even if they do not live here.

The resulting web of human relationships is another great strength of North America. It creates a bedrock of shared values and perspectives on the world that make it that much easier to work and cooperate with our North American neighbors.

In America, the share of foreign-born persons has reached and exceeded 13 percent, a level we haven’t seen since the 1910s. With the increase comes rising concern that something fundamental is changing that we don’t control. What Americans might not realize is that our North American neighbors share these concerns. Canada has experienced a proportionately much greater wave of immigration with the arrival of millions of Latinos, Asians and persons from the Caribbean that has brought the share of foreign-born persons to over 20 percent. Mexico, not a destination country for mass immigration during the 20th century, has even recently seen immigration rise.

These human exchanges, for all the economic and social benefits they produce for all three countries, point to another commonality among North American nations. The anxieties are natural and understandable, but they do challenge all three governments to respond.

Myth No. 5: NAFTA is passé, and an emphasis on North America is no longer relevant.

Nothing could be further from the truth. In fact, this is the critical time for us to focus on making North America stronger as part of the response to the challenges ahead. While the benefits of past economic integration have been significant, there are areas where it could be strengthened.

For example, there is the potential to lower the cost of energy for businesses and families across the region by integrating the distribution grids. We also could improve our border infrastructure, lowering the cost of moving goods across the border and boosting labor productivity. One idea is to reform of the North American Development Bank to mobilize public and private funds for infrastructure investment.

And we could learn from one another’s experience with reforming education and training, which would better equip our people to thrive in the global economy.

The overall result of simple changes would be to reduce the cost of producing goods, making our goods more competitive and supporting wages through increased productivity. Our people would be more prosperous.

This week, the Bush Institute will unveil its North America Competitiveness Scorecard, which indicates that North America is a world-beating competitor because of — not in spite of — our economic integration. A few practical steps in the specific areas flagged in the Scorecard’s analysis could make us more competitive still.

The resulting economic growth would go a long way toward allaying all three nations’ fears of the future — and turn them into the kind of optimism that will produce a second American Century that could also be a North American Century.

Matthew Rooney, a former senior official of the U.S. Department of State under presidents of both parties, is director of the George W. Bush Institute’s economic growth initiative. Reach him at MRooney@bushcenter.org.

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