Mexico’s Rise and US-Latin American Relations: A New Paradigm?

From the end of the Cold War to the beginning of the 21st Century, US hegemony in Latin America reached unparalleled heights. As a result, the implantation of neoliberalism occurred in a region that needed a new economic remedy after the failure of state intervention[1].

However, neoliberalism did not have the expected results in Latin America. Starting with Mexico’s economic implosion in 1982 due to an unsustainable foreign debt burden, the region experienced a series of foreign debt defaults and subsequent economic contractions and rampant inflation. The 1980s in Latin America came to be known as the “lost decade”.[2]

As Europe and the US currently face critical challenges to fix their economy, many Latin American countries are even less willing to imitate the US economic model. Moreover, they are increasingly inclined to create their own policies to cope with global economic slowdown.

As a result, American influence in the region has progressively deteriorated over the turn of the century. The 2012 Summit of the Americas in Cartagena, Colombia offered a vivid picture of the state of inter-American relations. The hemisphere’s heads of state underscored the weakening ties between the US and Latin America[3]. It also revealed the limited vision of both Washington to enhance a defined strategy toward the region.

However, while most countries in the region are following independent economic paths, US-Mexico economic cooperation is likely to grow. Indeed, Mexico’s prospect of economic growth is different than the rest of Latin America, and so is its economic relation with its northern neighbor.

No country is more integrated, economically and demographically, with the US, than Mexico. It accounts for two-thirds of US trade with Latin America and half of its energy imports from the region. The implementation of NAFTA strengthened the economic relations with the US since 1994, to which Mexico sends 80 percent of its exports, and from which receives the main source of FDI.

As stated above, current economic and geopolitical dynamics are likely to bring this relationship closer. Given the current high-energy costs and Chinese wage inflation, Mexico’s advantageous geographic proximity to the U.S. is helping boost exports. HSBC reckons that by 2018 Mexico will overtake Canada and China to become America’s main source of imports[4].

It has also been overwhelmingly the largest source of immigrants to the US, both legal and illegal. Nevertheless, this trend is also beginning to change. As a result of the country’s manufacturing boom, Mexicans are no longer massively working on US construction sites or agricultural fields. Contrary to what the 2012 US presidential election debate implied, illegal immigration to the US has been in reverse for several years[5].

More importantly, Mexicans are also crossing the border to invest in the US. Companies such as Cemex, which is the largest cement maker in the US, and Grupo Bimbo, which recently acquired Sara Lee for almost $1bn, are leading the way. Univision, which is now partly owned by Televisa, the Mexican broadcaster, is now the fifth-largest television network in the US[6].

A stronger economic partnership seems to be beneficial for both countries. Mexico’s new administration has expressed its intention to privilege the economic relation with its northern neighbor beyond migration and security issues. President Enrique Peña Nieto has affirmed that the most important part of the US-Mexico relationship is the economy, which is why he wants to concentrate on strengthening economic ties between the two nations[7].

Despite controversies surrounding the immigration reform and the construction of a wall in part of the US-Mexico border, both presidents have signaled that their administration would seek to focus the bilateral relation on the economy. Staff members of the Mexico Institute at the Wilson Center in Washington, DC have suggested that Peña Nieto wants to change the relationship from one where the focus is on Mexico as a source of drugs and people—a problem—to one where Mexico’s economy is a source of opportunity for the U.S. to create jobs[8].

On the other hand, economic concerns are at the top of Obama’s second term, a situation that could also prompt Washington to explore a stronger economic cooperation with its southern neighbor. The financial crisis and a decline in world power will continue to prevent Washington from formulating a strategy towards Latin America. However, the bilateral relation with Mexico can reach new heights as long as it focuses on common ground.

Mexico’s economic view and its geographical position have the potential to serve not only as a strategic partner for the US, but also as a pivot state to influence the region from an economic perspective. As Washington seeks solutions for its problems and as the economy continues to stagnate in Europe and to slow down in Asia, America will have to look down for its historical backyard. This time, however, Latin America has become more independent and less willing to find common ground with Washington.

Raising concerns on the ability of Washington to deter the influence of China –not only in Asia but also in Latin America–, will take the form of currency and trade battles. While Latin American countries will try to continue to diversify their trade partnerships and develop a stronger domestic market, Mexico will remain economically open, thus providing a growing market to fuel the American economy.

Ultimately, if Mexico manages to adopt these investor-friendly policies and achieves to formulate a more intelligent and pragmatic foreign policy, a new era in the bilateral relation would emerge, as both presidents are beginning new terms. Eventually, a more proactive US-Mexico relationship and lasting economic growth would help usher new possibilities to cooperate with the rest of Latin America, and Mexico could eventually set an example to other commodity-driven economies.

[1] Eric Hershberg and Fred Rosen, Latin America After Neoliberalism. Turning the Tide in the 21st Century? (The New Press, New York, 2006), p. 26

[2] Russell C. Crandall, The United States and Latin America After the Cold War (Cambridge University Press, 2008), p. 55

[3] “The Incredibly Shrinking Vision: US Policy in Latin America”, Peter Hakim, Inter-American Dialogue, July 5, 2012.

[4] “Special report: Manufacturing Magnet Lures FDI”, HSBC Mexico, March 27, 2012.

[5] “Special Report on Mexico – Migration: The ebbing Mexican wave”, The Economist, November 22, 2012

[6] “Mexico is forgotten story of US election”, Financial Times, October 14, 2012.

[7] CNN interview with Emilio Lozoya Austin, September 17, 2012

[8] “Mexico’s New Leader Tries to Shift Dynamic”, The Wall Street Journal, November 27, 2012.