Reasons to Celebrate this Cinco de Mayo

The Relationship Between the US and Mexico Continues to Get Better Because of Trade

Published Wednesday, May 4, 2016

Arizona and Mexico are more than neighbors. The two are more like a married couple with a complicated interdependent history, and a mutually dependent relationship. The NAFTA region shares common historical struggles within and against foreign powers and has one of the most symbiotic partnerships in recent history. Regional leaders in the know are fully aware of the strategic value of stability and competitiveness in North America. But how aware is the general public on both sides of the border about the interdependence between the two countries, particularly amidst the noise of the U.S. presidential campaign season? We argue that Mexico has changed significantly and will be an asset for U.S. primacy in the future international system.

Consul General of Mexico in Phoenix, Roberto Rodríguez, referring to statistics of the U.S. Census Bureau highlights that “while much attention is given to the rising volume of U.S. imports from México over the past decade, what is often overlooked is the fact that México has emerged as the second destination in the world for U.S. exports. In 2015, U.S. companies exported USD 236 billion in goods to México, more than a five-time increase since the implementation of NAFTA in 1994. As a measure of the significance of our bilateral trade, the United States exports more goods to México than to Brazil, India, Japan and the United Kingdom combined, with six million U.S. jobs relying on our bilateral trade.” (Source Consul General Rodriguez with data retrieved from the U.S. Census Bureau, www.census.gov, March 2016).

U.S. exports to Mexico also exceed combined exports to Great Britain, France, Belgium and the Netherlands. (Source: Realizing the Value of Crossborder Trade with Mexico, Figueroa, Lee and Van Schoik, ASU, 2013). The U.S. is Mexico’s largest source of foreign Direct Investment (FDI) and the keystone for strategizing and implementing foreign and national security decisions. Both countries are interdependent to an extent that any cycle of economic growth or slowdown will impact both markets. Any threat to the stability of Mexico would also be a threat to the national security of the U.S., like the potential use of the border by organized crime, terrorist groups or enemy powers challenging the U.S. leadership in the world.

The “U.S. - Mexico marriage” did not happen after the entry into force of NAFTA: NAFTA is a long lasting honeymoon. The special relationship has always been underlying as a result of geographical proximity. The U.S. and Mexico, sister republics, declared their independence from the European rule almost at the same time (the U.S. in 1776 and Mexico in 1810) and since then the borderlands have been a constant factor in the relationship: either a cause of war or an opportunity for immigration, trade and investment flows.

Arizona is one of the lost Mexican territories in the Mexican-American war of the mid 1800’s with California, New Mexico and Texas. The bordering states have a commonality: they are links between one of the most significant empires in history and a democracy in reluctant transition. The borderland is a source of disagreements in D.C. and Mexico City, but also the home of advanced industrial clusters and food, water and energy supply chains as well. The strategic value of the U.S.-Mexico border is present in most foreign and national security memos of both governments. By itself, “Amexica”, as some pundits call the border between the two countries, represents the 4th largest economy in the world, including 10 states.

For globally minded entrepreneurs the borderlands represent business opportunity: a place where the largest market in the world collides with one of the most vibrant economies of the 21st century, a market eager to consume American products and services, and a country with a decreasing sense of anti-Americanism. Today, Mexico’s perception of the U.S. is positive and getting better. According to Mexico’s Center for Research and Teaching in Economics, between 2004 and 2012, taken as a whole, both the Mexican general public and leaders see the U.S. as a trustworthy neighbor and a source of admiration. Distrust and disdain towards the U.S. have decreased over the last decade. On a scale of 1-7, where 1 represents a very negative action and 7 a very positive one, both groups gave the highest average rating to the U.S. action of promoting free trade (the public rates it at 5.1, and leaders 4.7). When it comes to U.S. national security and foreign policy initiatives, the Mexican public and leaders grant less legitimacy to U.S. actions in the Americas and the world. However, the U.S. policy towards Mexico is perceived with moderation in both groups: the public ranking it at 5.1, and leaders at 4.3. (Source: Mexico, the Americas and the World 2012-2013. Foreign Policy: Public Opinion and Leaders, Gonzalez et. al., Center for Research and Teaching in Economics, Mexico, 2013).

How much do Americans and Arizonans value the U.S.-Mexico alliance, a union that in the mid 19th century expelled the French Empire from the Americas, the real reason we celebrate Cinco de Mayo? In 2050, how much will the U.S. value having Mexico (by then the 6th largest world economy) by our side as an ally as close to us as Canada or the U.K.? Global-minded leaders in Arizona understand that the state is tied to the legendary American Southwestern territory and that Mexico still offers opportunity for fortune hunters. The 21st century Arizonan trailblazers are looking into new trade corridors represented by efficient logistical infrastructure and outsourcing opportunities in a market with low production costs and strong copyright enforcement. Many leaders have understood that the old stereotypes of an impoverished, corrupt and uneducated Mexico have faded away after profound political and economic transformations. Now Mexico is a democracy in transition and a fast-growing and steady emerging economy. In a few decades, as long as the Mexican elites continue with the structural reforms, Mexico will be a more fully evolved democracy with a strong free market economy and an outstanding middle class of 80 million people by 2030.

The U.S. Southwest border with Mexico is as a region of opportunity. We must appreciate the growing Mexican middle class with their discretionary income as much as the Mexican selected group of magnates that can invest in the U.S., because both can help ensure the sustainability of the NAFTA region. We must envision North America as the most advanced and sustainable economic engine in 2030 because at that moment our traditional Western allies will be lagging behind the growth of economies such as China, India, Indonesia, Brazil and Russia, most of them being challengers of the existing U.S.-European shaped world order. (The World in 2050: Will the shift in global economic power continue?, PwC, 2015).

Ultimately the new economic world order means a challenge and opportunity to the U.S. for developing and hosting advanced industries and services, promoting American FDI, products and services in the world by free trade agreements and intellectual property enforcement. Yet the general public doesn’t always see the value of free trade agreements, many stuck in paradigms that don’t represent current and future economic reality. Currently most of the FDI coming to Arizona is European; however, Mexico will exceed the largest European economies and Japan by 2050. Do we already have an effective long term strategy to attract more Mexican FDI into Arizona? Are we able to support our business strategies with our political intentions and state-of-the-art transportation infrastructure? Are we ready to host the Mexican transnational companies that will be looking into the U.S. to expand operations? Today Arizona only hosts about ten large Mexican companies, most of them in mining, food and beverage industries.

The U.S.-Mexico border is a perfect laboratory to corroborate the international trade notion that “exports rely on imports” per Figueroa et.al. About 40% of the content in U.S. imports from Mexico is actually produced in the United States. Just to demonstrate the level of interdependence, the Mexico Ministry of Foreign Affairs translates this fact into plain words for us: forty cents of every dollar spent on imports from Mexico comes back to the U.S., a quantity ten times greater than the four cents returning for each dollar paid on Chinese imports. Mexicans that legally cross the border to shop and visit Arizona represent about US$ 7 million per day according to the Arizona Mexico Commission. Consul General Rodríguez elaborates on the strategic value of Arizona in the U.S.-Mexico relationship: “México and Arizona are friends and strategic partners, both share multiple economic, social and cultural ties. México ranks as the first destination for Arizona’s exports with USD 9.1 billion in 2015. An estimated 111,216 jobs in Arizona rely on bilateral trade with México. But beyond trade, our most valuble assett continues to be our people. Arizona is home to 1.7 million people of mexican origin that contribute importantly to the prosperity of both Arizona and México. We need to reinforce our path to the future, unlike the past we must build bridges and not walls.”

(Source: Consul General Rodriguez with data retrieved from the U.S. Census Bureau, www.census.gov, March 2016; U.S. Chamber of Commerce, NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs, October, 2015; and Pew Research Center, www.pewhispanic.org, Demographic Profile of Hispanics in Arizona, 2011)

The U.S.-Mexico border region attracts FDI from around the world. So in many ways the border represents not just trade between Mexico and the U.S., but with the world as well. That is why we cannot wait and let other states such as California and Texas continue to make the most of the geographical proximity with Mexico; we need to catch up with more aggressive and progressive regional trade and investment strategies that take into account the epicenters of international trade and investment: our metropolitan areas. For Phoenix and Tucson, global engagement must be a priority, while boosting existing local firms with export capabilities to make the most of already developed industrial clusters. (See Global Cities Initiative, Brookings and JP Morgan Chase, Atlanta, 2015)

Things have changed, and more change is needed. Last year a group of business leaders with the support of the City of Phoenix were able to entice the Mexican Telecommunications tycoon, and the world’s 2nd richest man, Carlos Slim to Arizona. Mr. Slim’s companies are heavily engaged in Mexico and throughout the Western Hemisphere. That trip opened the door to Mr. Slim’s companies in Arizona and helped facilitate other trade discussions for business and government leaders. Small business steps have been leading to more opportunities.

We need to continue hosting an open dialog to educate our general public and decision makers about the potential that Mexico represents and advocate at the business level for a more coherent strategy to embrace Mexico. The 2016 Global and Arizona Town Hall discussions in Phoenix and Tucson fostered a productive dialog with Mexican colleagues that will translate into better policy and more business and jobs for Arizona. If you want to be informed and partake of the dialog, keep reading our media contributions and join us for our high level discussions. We will be happy to provide you with the right information to make your business be “global and unstoppable”.

Happy Cinco de Mayo Weekend!

 

Authors:

Julio ESPINOZA is a Phoenix based U.S.-Mexico relationship expert with credentials in academia, foreign policy, national security and global trade. He is currently consulting for economic and political agents in Arizona and Mexico.

Doug BRUHNKE is the founder and CEO of Global Chamber™, a thriving community of professionals, mentors and innovative companies taking on the world of global business.

 

Special thanks:

Roberto Rodríguez, Consul General of Mexico in Phoenix, Mexico Ministry of Foreign Affairs; Cristina Parisi, Senior International Trade Specialist with the U.S. Commercial Service, U.S. Department of Commerce; Eduardo Gonzalez, Deputy Trade Commissioner in Arizona, Mexico Ministry of Economy; and Michael Patterson, attorney at law with Polsinelli.

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