Review: US business with Mexico needs fewer walls

10 Jun

img-side-bookBusiness between the United States and Mexico needs fewer walls. But Shannon O’Neil argues U.S. policy sees Mexico as a problem not a partner.  Her book “Two Nations Indivisible: Mexico, the United States and the Road Ahead”, debunks the idea that the southern neighbor is a drain on U.S. wealth. Trade with Mexico has made the United States richer. It’s time Washington embraces that reality.

Mexico has become an integral part of the U.S. economy.  The trade bill between the two countries reached almost $500 billion last year making Mexico a top trade partner to the United States, and the second largest consumer of U.S. goods after Canada. A number of Fortune 500 companies, from Johnson & Johnson and General Electric to Hewlett-Packard have production chains that cross the Rio Grande. And nearly 12 million Mexicans and almost three times as many Mexican descendants now live in the United States. But critics of closer economic ties between the countries blame the North American Free Trade Agreement for taking U.S. jobs abroad, and they claim that Mexican immigrants bring down wages.

O’Neil, the resident Latin America expert at the Council on Foreign Relations, is at her best dispelling such myths. Mexicans stepping over the border compete for low wage work, mostly done by previous migrants like them. Plus, the number of college-educated Americans has only risen over the past three decades, which means fewer U.S. citizens compete for the type of low-wage jobs immigrants take on anyway. Economists of all stripes agree that many factors, notably technological change, have hurt U.S. high school dropouts more than Mexicans eager to work for less. What’s more, members of the Hispanic community, far from being a drag on growth, are ten years younger than the average U.S. resident, and spend $1 trillion a year.

U.S. companies that outsource jobs south of the border are also regularly attacked. But O’Neil illuminates the debate pointing out that doing some outsourcing can help companies generate more U.S. jobs later on. Her use of machine-maker Caterpillar Inc. as an example is dead on. In 2005 Caterpillar laid off 560 workers when it moved its small engines castings production from Mapleton, Illinois to Saltillo, a town in Northeast Mexico. Cheaper castings helped the company create 1,500 new jobs back in Illinois, nearly three times the U.S. jobs initially lost. True, not all outsourcing stories are that clean, but the idea that stronger economic ties with Mexico only hurt the U.S. is misguided.

Sadly, such thinking prevails when Washington passes laws that promote waste and hurt growth. For instance, a U.S. obsession with border security led the government to double border patrol agents to 20,000 and raise the U.S. Border Patrol budget to $3 billion by 2010. Yet only 340,252 illegal aliens were apprehended in 2011, the lowest level in 40 years. Four out of five illegal immigrants still make it across. Meanwhile, trucks carrying nearly $1 billion worth of goods back and forth across the border everyday face substandard roads in U.S. border states, long delays at the border, and a mass of bureaucratic restrictions that make trade more expensive. Even by U.S. Commerce Department estimates – O’Neil points out – a minute delay at the border can cost the U.S. economy $100 million and nearly 500 foregone jobs. The U.S. needs better infrastructure and less people with guns at the border.

To be sure, O’Neil gives Mexico credit for building a stronger democracy in the past 20 years, but she doesn’t give the country a free pass. Its $1.2 trillion economy has brought millions of people into the middle class, but poverty remains a problem. Government corruption still weakens key institutions. Its energy industry is in shambles. And Carlos Slim’s monopoly power in the telecom sector has burdened Mexicans with very costly phone service. President Enrique Peña Nieto’s reform agenda must address these issues.

But Mexicans are under no illusions about the difficult road ahead. In that sense the book serves better as a mirror held up at the United States. American policymakers must realize that business has become more globalized just as the country’s demographic makeup has changed. The country needs a policy that puts illegal immigrants on the path to green cards and citizenship. This remains controversial only because the first thing America needs is a change in mentality. O’Neil’s book does the important job of highlighting the problem. Decision makers in the United States would do well to read it and absorb its message.

* “Two Nations Indivisible: Mexico, the United States, and the Road Ahead”, by Shannon K. O’Neil is published by Oxford University Press.

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