Three Neighbors, So Entwined : Differences Need Not Frustrate Better-Managed Economic Ties

Taking a new look at U.S. relations with Canada and Mexico comes more easily here in the West, where development has always depended on transcontinental ties.

Today California is the largest market for Canadian natural gas. The state depends heavily on Mexican labor for its major exports, and--together with Texas, Arizona and New Mexico--its economic future is linked to trade and investment relations with Mexico. And the Pacific Rim countries are already viewing Canada and Mexico as platforms to penetrate the U.S. market, beginning in the West.

Indeed, as the world’s seventh-largest economy, California sees only benefits from an upgraded trilateral relationship. It is no accident that prominent Californians across the political spectrum have taken the lead, from former Gov. Jerry Brown’s call for a “North American Accord” in the late 1970s to former Gov. Ronald Reagan’s campaign plank for a “North American Common Market” in 1980.

At the time, neither Canada nor Mexico wanted any part of such grand designs. Both were pursuing their own nationalist development policies that precluded closer structural ties to the North American political economy. And the incoming Reagan Administration itself chose policies of fiscal nationalism and rearmament, driving up the dollar and focusing more on the trappings of American power than on its economic substance. It was forgotten that true security for the United States comes from enhanced productivity at home, in an economy that already extends well beyond our borders. Whether or not Canada or Mexico was seen to be “our most important foreign-policy relationship” depended on the circumstances; they were rarely linked in a broader continental vision. Why, then, reconsider some association of the three?

For one thing, both Canada and Mexico have become more trade-dependent on the United States, while the oil wealth that fueled independent foreign policies disappeared, leaving huge debts. For another thing, the United States faces an increasingly competitive and unforgiving world trade environment, while the industrial and financial base that sustains it as a great power erodes.

To become competitive in Asia, Canada must first compete in the huge U.S. market, and for this reason it is seeking a comprehensive free-trade agreement with us. Any hope for Mexico to regain its historic postwar 6% growth rates is predicated on access to the vast U.S. labor, capital and consumer markets and technology. But this means more access to our exports, because the United States cannot indefinitely sustain negative trade balances with our first- (Canada) and third- (Mexico) largest trading partners.

Recent trends in North American trade, migration and finance have left the three neighbors more interdependent than ever before. Yet many of their actions are partial, reflecting fears and prejudices of the past, despite a growing realization that our destinies are irrevocably entwined. Examples are recent duties imposed by the United States on Canadian wood products and those by Canada on American corn (both actions taken in the middle of discussions about free trade), or the unilateral imposition of restrictive immigration legislation by the United States, despite the consequences for Mexico, with both governments ignoring the increasingly binational nature of their labor markets.

Given this growing de facto interdependence, the three countries should take immediate steps toward better management of their increasingly complex relationship. This involves learning more about the options for cooperation from admittedly widely different perspectives.

Before beginning the current free-trade discussions with the United States, Canada’s Macdonald Commission carefully analyzed the pros and cons of further reduction in trade barriers between the two nations with the largest bilateral exchange of any two countries in the world. One convincing element was the pressure of growing global competition, a process that is forcing changes in the marketplace regardless of decisions by the United States and its neighbors.

Mexico, with a history of much greater protection, is also disposed toward greater openness. Yet it is moving more cautiously, given the weaknesses of its debt-ridden economy, severe underemployment and the vulnerability of previously protected industries. Were it not for present barriers, Mexico’s trade, investment, production and employment relations with its northern neighbors would greatly increase, benefiting all three countries into the next century.

If a common market is premature--and it is--the underlying issues of transcontinental restructuring and growth must be faced. New and constructive ways should be found to bolster this contiguous market of 335 million people. This means moving immediately to freer trade and investment with Canada and to substantial debt relief, trade and investment with Mexico, in arrangements that share the gains among the three partners. Such an approach recognizes that neither Canada nor Mexico can soon accept the political and economic risks of full integration with an asymmetrically powerful United States, any more than the United States is able to open its doors freely to Mexican labor. The disparities are too large. Even the European Common Market began step by step, starting with coal and steel.

A North American approach must accommodate different values. Canada is determined to retain and enhance cultural sovereignty, however the trade talks turn out. Mexico is committed to the social goals of its great revolution, whatever the logic of greater openness to market forces. The United States has its own strong convictions on how to run an advanced industrial democracy. Nor can the three nations’ different foreign-policy goals be easily reconciled. For example, neither Canada nor Mexico supports the U.S. position on Central America. Perhaps above all, the asymmetries of power and scale are what divide the three, despite the relative decline of U.S. power in the world system.

Despite these obstacles, a closer regional association that is based on greatly intensified trilateral contacts should now be placed high on the agenda. At issue is the better management of the financial, trade and social flows that are making North America more and more interdependent. Furthermore, in order to safeguard its great-power status in the rest of the world, the United States may well begin to appreciate the importance of a strong, manageable regional relationship as a practical way to reward friends and pressure competitors, while retaining the overall goal of an open world-trading system. It is probably true that Canada, with its traditional resource-based economy in transition, and debt-ridden Mexico, attempting to restructure with austerity, have more to gain at the outset. But now that all three nations have abandoned economic nationalism and are in trouble together, it is not just the American West that should be singing the praises of North American association.