Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Good Neighbors

by Shannon K. O'Neil
February 18, 2014

U.S. President Barack Obama addresses a joint news conference with Canada's Prime Minister Stephen Harper and Mexico's President Felipe Calderon in the White House Rose Garden in Washington, April 2, 2012 (Larry Downing/Courtesy Reuters). U.S. President Barack Obama addresses a joint news conference with Canada's Prime Minister Stephen Harper and Mexico's President Felipe Calderon in the White House Rose Garden in Washington, April 2, 2012 (Larry Downing/Courtesy Reuters).

President Obama will meet tomorrow with Mexican President Enrique Peña Nieto and Canadian Prime Minister Steven Harper for the North American Leaders’ Summit. The three leaders will take a look back on the last twenty years of regional integration, but even more importantly, they will have an opportunity to set the course for the next two decades. In this piece for Foreign Policy, I explain why working trilaterally for a North American future is more important now than ever before for the United States.

On Feb. 19, President Obama heads to Mexico to meet with President Enrique Peña Nieto and Canadian Prime Minister Stephen Harper at the North American Leaders’ Summit. The three leaders will undoubtedly look back at the last twenty years, recognizing the mostly positive changes that the North American Free Trade Agreement (NAFTA) and other cross-border ties have brought to the three nations. But the more important element of the meeting is a question: Will the leaders look forward in a serious way, setting the neighborhood agenda for the next 20 years and grabbing the opportunity to promote a truly North American future?

The most fundamental building block of that future is and will continue to be trade. Today, each of these nations is among the others’ largest trading partners, with intra-regional trade reaching more than $1 trillion a year. Some 14 million U.S. jobs depend on its neighbors—5 million more than in pre-NAFTA days. These jobs pay, on average, some 18 percent more than those catering to just U.S. consumers—what economists call the “nontradeable” sectors, according to a Department of Commerce study. This and other international trade have also benefited American households through the wider variety of goods available at lower prices.

To be sure, some jobs have left. But studies show that even more have been created, and that these jobs have come precisely from those companies that embrace global production. A study by Harvard Business School and University of Michigan professors, using confidential data collected by the commerce department, estimates that, for every ten jobs that multinationals create abroad, they create on average two new jobs in America.

By producing globally—and especially continentally—companies like Ford, Caterpillar, General Electric, and OfficeMax have been able to expand locally.

This finding reflects perhaps the biggest commercial shift since the signing of NAFTA: the changing nature of production. Rather than sending each other finished products, the United States, Mexico, and Canada now trade pieces and parts. The back-and-forth among assembly lines, plants, and countries in the making of each car, plane, computer, or flat-screen TV means that for every item imported from Mexico, 40 percent of its value, on average, was actually “made in the USA.” (For Canada, it is 25 percent.) That means, of the nearly $277 billion in goods imported from Mexico in 2012, $111 billion was actually made by U.S. workers. In contrast, of the much larger $425 billion imported from China, less than $17 billion was derived from U.S. labor.

As dramatic are the changes on the energy front. Here, North America has long been tied together: Canada and Mexico have been top oil suppliers to the United States for many years. The flows are often reciprocated, with Mexico buying U.S. natural gas and the United States and Canada sharing electricity through integrated grids.

But the potential of North American energy has transformed in recent years. In the United States, the rise of shale oil and gas has shifted the conversation from one of preoccupations with scarcity to talk of self-sufficiency and even abundance. In Canada, new technologies are unlocking the vast resources of Alberta’s oil sands, and warming temperatures are opening up potential new finds under the Arctic ice. In Mexico, recent constitutional reforms are changing the energy landscape, opening up this sector, after decades of state control, to private investment and expertise.

The rising exploration and production accompanying new U.S. energy finds has kicked off an employment boom, with estimates of between one and two million new jobs being created in the next six years. But the surge will also have wider-ranging effects, encouraging further investment in energy-intensive industries like chemicals, fertilizers, cement, glass, and plastics. And, if exploited in an environmentally sustainable way, access to cheap and stable energy in the three nations will undergird the regional supply chains that are already deeply embedded, giving corporations one more reason to choose North America over other locales for their production.

Vital to this dynamic future is security. Here, the three nations face threats ranging from organized crime to terrorism, from health and natural disasters to cybersecurity. Since the attacks of Sept. 11, the United States has increasingly come to see its borders as a source of vulnerability and addressed them both unilaterally and bilaterally through policies like “Beyond the Border” with Canada and the “Twenty-First Century Border Initiative” with Mexico, which aimed to improve security by jointly sharing intelligence and creating trusted traveler and other programs to speed up the good and stop the bad crossing each day. These border-centric strategies have improved security, but often at the cost of trade and economic competitiveness. And by working only bilaterally on security threats, the three nations often miss the benefits that could come from a much closer and coordinated regional approach to protecting North America’s peoples.

The time is right for re-envisioning North America. Mexico is in the middle of historic changes. Over the last 16 months, the country’s congress has passed as many major reforms across several policy areas, ranging from education to anti-trust, taxes to energy. These changes should make Mexico more open, and the integrated supply chains already in place with its neighbors all the more competitive. Moreover, immigration flows—which fell to net zero with the United States in recent years—have at least the potential to lessen the heated rhetoric that inflames bilateral tensions and to open up space for constructive engagement on economic, energy, and security issues, among others. To the north, meanwhile, Ottawa is open to engaging the United States, and to working to make the most of Canada’s energy boom and resurging potential for manufacturing. It has also expressed an interest in a regional approach to global issues.

The costs of not engaging are increasingly high. In a world of regional blocs, deepening U.S. ties with its economic allies—particularly its neighbors—will help maintain national competitiveness. America’s dream of energy self-sufficiency depends too on its neighbors, and, on the security front, given the significant interlacing of companies, workers, families, and communities, outcomes in one place often reverberate regionally.

The United States is already a global superpower. But with its neighbors, it could extend its reach even deeper. At this week’s summit, North America’s leaders need to do more than acknowledge their mutual interdependence—they need to set an ambitious agenda to expand it.

3 Comments

  • Posted by Ian McClelland

    This article may shed light on why many Canadians feel betrayed because of President Obamas’ actions in relation to the Keystone XL pipeline.

    The energy industry in Canada has long been a partnership between the United States and Canada. Americans participate as investors, owners and users exactly as Canadians. Under the free trade agreement the United States has equal access to Canadian energy at exactly the same price as Canadians.

    By making Keystone XL a pawn of domestic American politics, the President has issued an important wake up call to Canada. It is clear… We must build pipelines to East and West coasts, the USA will then no longer have a captive supplier and will then compete with other markets for Canadian energy.

    The president, and the United States… have the right to do what is in their exclusive best interests, but in this instance, the President may prove to be somewhat short sighted.

  • Posted by Fences & Drones

    Nothing will come of this summit, or any other as long as The Big “O” occupies the White house. Obama has been a huge disappointment to Canadians. After eight years of “I’m going to build a fence on the Canadian Border” Bush, we were hoping for a new relationship with our friends and relatives south of the 49th parallel. Instead we got eight more years of “Blame Canada”.

    The only good news in all this is that sooner or later there will be a new president, and we can all try again. The reservoir of goodwill for America in Canada is deeper than anything a couple of presidents can drain.

    The next logical step for Canada and the US is a customs union, with the free flow of citizens between the two countries for work and travel. Over time we can bring Mexico along into a customs union and finally solve America’s illegal immigrant problem. Workers with Mexican passports can live in America as long as they want, but that will not lead to citizenship as they will be present in the US (or Canada) under the terms of the customs union.

    The solution is to embrace integration, ironically it is the best way for you to solve your immigration problems, and for all our us to grow our economies.

  • Posted by LaymanGeopolitics

    Where as Manifest Destiny oriented the U.S. from east to west the Monroe Doctrine shifted us from North to South. I see cooperation like this as a tremendous step toward getting us back on track to pre WW1/WW2/Cold War goals.

    We should be doing everything in our power to make Mexico the new export driven economic powerhouse….the new China. With wages rising in China and companies looking for new factory destinations why not push them towards Mexico? That right there would fix much of the U.S. immigration problems right there.

    There is no reason why we should be giving Afghanistan, of all places, 13 billion in aid a year when we could be diverting much of that to help mexico improve their infrastructure. A stronger Mexico means a stronger American continent as a whole.

    http://laymangeopolitics.blogspot.com/