Everything you need to know about Obama’s mission to Mexico today

May 2, 2013
Obsession
Borders
May 2, 2013

President Barack Obama is visiting Mexico today, and he doesn’t really want to talk about drugs. That’s not just because of the awkwardness caused by Mexico’s new president, Enrique Pena Nieto, restricting cooperation in joint efforts to combat violent criminal organizations that traffic drugs.

No, this is intended to be a commercial visit, focused on talking up the benefits of deeper economic integration before the US considers an immigration reform bill heavily focused on the Mexican border.

White House adviser Ben Rhodes told reporters that while changes to security are “only natural” when a new president is elected, the enormous commercial relationship between the two country’s has been “lost.”

Let’s find it.

While violence continues to be a problem in Mexico, its economy has recovered and maintained pre-crisis growth rates, unlike the United States or Brazil:

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(2013 and 2014 are IMF estimates)

Why is that? Trade. Thanks to location and the North American Free Trade Agreement, it’s America’s third-largest trading partner, with nearly $500 billion worth of goods going back and forth across their borders each year. Obama and Pena Nieto will talk about infrastructure investments that could increase that trade.

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Mexico exports more than the rest of Latin America put together, according to Carlos Elizondo, an economist at Mexico’s Center for Research and Teaching in Economics (CIDE), and he says Mexico is “less dependent on exports to the US. It used to be around 85%, now it’s around 70%.”  That’s one reason that investors are starting to cool toward Brazil and look to Mexico as a site for foreign investment.

Tap image to zoom
(2013 and 2014 are IMF estimates)

Both Mexico and Brazil face a China problem. Brazil’s economy is dependent on sales of natural resources abroad, but commodity prices are falling thanks in part to fading demand in China. A restructuring is necessary, but improvements to Brazil’s infrastructure and workforce will be costly.

Mexico’s problem is that it is competing with Chinese workers in the manufacturing business. Its main answer is integration with advanced economies: 40% of the components of Mexican exports to the US were made in the US, and American manufacturing is growing (and growing dependent) on that fact:

Exports-to-Mexico-4-1024x633The big opportunity for Mexico right now is trying to profit from the change in China,” says Eduardo Moron, an economist at the Latin American Reserve Fund. As their mutually dependent manufacturing sectors show, Mexico is tightly integrated into the US economy. Moron predicts that as the soon-to-be world’s largest economy China “rebalances” to allow consumer consumption to drive growth, Mexico can develop the same relationship there that it has with the US: Selling consumers goods and participating in its supply chain. In this vision, Mexico can be as plugged into Shanghai as it is with El Paso, figuratively, at least.

“We really see Mexico as a country that’s on the rise,” says Ricardo Zuniga, a White House foreign policy adviser. “Not just a NAFTA partner but a TPP partner and one that has a strong positive economic future. We want to be part of that.”

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TPP is the Trans-Pacific Partnership, an effort to create a free trade bloc across the Pacific in parallel to the Asian-led Regional Comprehensive Economic Partnership. Both Mexico and the US stand to benefit significantly from the completion of such a pact, and the two countries will want to be on the same page if participants are to meet their goal of finishing by the end of this year.

What about the US immigration debate? It’s part of the story because Mexico’s economic growth reduces unauthorized migration. You can see people voting with their feet when the US economy was booming compared to Mexico’s in the nineties, and when the reverse was true during the recent recession:

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Showcasing Mexico’s potential as an economic partner, and not a source of unauthorized labor, is what this mission is all about. While the debate over security cooperation could prove a distraction, both presidents have gone on record in support of each other’s reform agenda, even when their agendas run into trouble.

If all else fails, it’s worth remembering that Mexico is the number one destination for US tourists, with some 19 million visiting each year. Obama got a sense of why on a 2012 visit.

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