America’s Big Stake in Mexico’s Prosperity

For a real understanding of the proposed U.S.-Mexico Free Trade Agreement, look beyond today’s vocal opposition to its enormous promise for the U.S. economy.

Just for openers, if Mexico gets going, the United States would be exporting automobiles to a country that now restricts car imports and has only one car for every 15 people, compared to three cars for every four people in the United States.

Then, at every stage of Mexican development, the United States would enjoy an expanding market for sophisticated products and services. Indeed, if the agreement, which now includes Canada, is approved by Congress, it will do more than create the world’s largest trading bloc. It will demonstrate that brainpower is the true industrial advantage in the Information Age, not labor cost.

Opponents, to be sure, see a different prospect. A coalition of labor and environmental groups has been raising a specter of U.S. business fleeing south to take advantage of $2-an-hour labor and lax pollution laws. The U.S. economy is 25 times the size of Mexico’s; U.S. production wages are seven times those of Mexico, they argue. Why wouldn’t a business want to make products in cheap-labor Mexico to ship into the high-income U.S.A.?

The answer is that cheap labor doesn’t count for a lot in today’s world. If it did, Mexico would already be an industrial powerhouse and you would see Mexican goods flooding U.S. stores and showrooms.

Let’s look at the facts. Right now, U.S.-Mexico trade is well balanced but limited by Mexico’s underdeveloped economy. Last year the United States exported $28.4 billion worth of goods to Mexico and imported $30 billion worth--including almost $5 billion in oil. Excluding the oil, U.S. industry and agriculture enjoyed a $3-billion trade surplus in grains and soybeans, computer equipment and electronic chips, auto parts and other items.

Yet Mexico, with almost 90 million people, buys less computer gear than the Netherlands with 15 million. As Mexico develops, it will buy more.

Mexico manufactures 500,000 automobiles for its vast population and area, helped by special cross-border parts shipping arrangements with U.S. companies.

If free trade is approved, Mexico may increase its production but, more significantly, “it will be importing a lot of cars and trucks,” says Rudiger Dornbusch, professor of economics at Massachusetts Institute of Technology.

The reason is economics. Cars are not made where labor is cheapest, but where production is most efficiently organized. Today, that means the new plants Japanese and U.S. manufacturers have opened in Tennessee, Kentucky, Ohio, Indiana and Michigan. A Ford-Nissan joint venture on a van, for example, or the new Toyota and Nissan research and development centers in south Michigan where the automotive engineers are.

Mexico may well increase light-truck production and become an exporter itself to Central and South America. But the computerized machinery for its plants will come from the United States and much of the design and engineering, too, will be done in the United States and beamed through in computer transmission. “It will be brains on line,” says Harald Malmgren of Malmgren Inc., a Washington trade consultancy.

The computer lines are already being laid. Last week American Telephone & Telegraph, working with Telefonos de Mexico, announced a fivefold increase in capacity for U.S.-Mexico voice and data communication. AT&T; is also working on an internal network that is part of Mexico’s $2.5-billion program to upgrade its telephone system.

The message, of course, is that wherever the product or service involves brainpower, U.S. suppliers will do well.

That’s why U.S. grain and livestock farmers, who employ more agricultural research and technology than any farmers on Earth, are supporting the free trade agreement. They see a greatly expanding market in Mexico.

On the other hand, fruit and vegetable farmers in California and the Rio Grande Valley who depend on imported Mexican labor could find their business moving south as the labor stays home.

What’s in this free-trade idea for Mexico? A boost up the development ladder, rising living standards for its people. For that, President Carlos Salinas de Gortari is standing Mexican political tradition on its head to open up the country.

Meanwhile, in U.S. politics, labor opposition to the free trade agreement is calling attention to the plight of uncompetitive auto parts makers in the North-Central industrial states--although not the newer Southern state auto industry.

The labor opposition basically wants the Bush Administration to promise real help, retraining and education for displaced workers. And so it should promise, in an age when brainpower is the only true industrial advantage.

The environmental opposition is even more of a threat to the trade legislation the Administration will seek in May, reports Phil Burgess, head of the Denver-based Center for the New West, which last week held a conference on the free trade agreement.

The environmental groups, their objections often tinged with prejudice toward Mexicans, want the U.S. Congress to extend its political sway to tighten Mexico’s environmental policies.

Their prominence in the free trade debate, along with that of church groups and others, signals that closer economic ties with Mexico is shaping up as more than an economic issue. We’ll all hear a lot more rhetoric and argument about it in the coming weeks.

But really the choice is very clear: If Mexico develops, its rising prosperity will spread benefits on both sides of the border. If it is prevented from developing, its problems will spell trouble on both sides of the border. A look at the facts can bring real understanding on that score.