Invest in the Neighborhood - John Jason Fallows

Invest in the Neighborhood –

It is a blessing to have good neighbors and a curse to have bad ones.India, for example, has revolutionized its national economic life and, to some extent, its social life since the middle 1990s, and the fruits of its reforms have enriched that country in obvious and less obvious ways. But India remains a partial prisoner to geography and history, surrounded as it is by failed and failing states (Pakistan, Sri Lanka), basket cases (Bangladesh), and a totalitarian police state with a nuclear arsenal and grand nationalist ambitions (China). At the other end of the spectrum, the still-young Czech Republic has been helped along greatly by the fact that it is located alongside Germany and Austria, which are, in this century, two of the best neighbors one could hope for. Happy Switzerland can go its own independent way thanks in part to the neighbors with which it is blessed; but if Iran should tomorrow undergo a great awakening and reconstitute itself as a liberal constitutional republic, it still would be in a pretty tough neighborhood and would be circumscribed by that reality.Economics and diplomacy may help to shape the world, but geography still will have its say.The United States has been shaped by its neighbors, too, and by its geography — which for many years ensured that a great many Americans did not have to think about Mexico or Canada, which are very far from Wichita, much less about Central America or faraway realms on the other side of our fortifying oceans. The editors of the foreign pages of American newspapers, who were lonely men, used to observe that as far as their readers were concerned, if it didn’t happen in England, it didn’t happen. Princess Diana we knew — but how many Americans could pick the Empress Masako out of a police lineup? Europeans sniffed that Americans knew no foreign languages, and Americans were convinced, not without some good reason, that they didn’t really need to.That was then.The United States is bordered by two magnificent but very different countries: Canada, sprawling and 80 percent uninhabited (“Too much geography and too little history,” Mackenzie King famously observed) and Mexico, beautiful and complex, turbulent and poor. We Americans do not talk about Canada very much, except for the occasional tantrum about how timber royalties on Crown Lands are calculated or a low-level skirmish about dairy policy. The United States and Canada do about three-quarters of a trillion dollars in trade annually, Canadians and Americans have fought together from the Great War to Afghanistan, and if Trudeau helps some Americans to feel a little better about Trump, then Trump helps more than a few Canadians feel better about Trudeau. Americans may not think about Canada very much — Canadians do not have the luxury of not thinking about us — but when we do, we generally think well of them: Canada is, according to the polls, Americans’ favorite foreign country.Mexico is a different story. Like much of Latin America, it has been plagued by bad government, corruption, ineffective institutions, poverty, and dysfunction. It is not so poorly off as Ecuador or Guatemala, but it would need to go a great way before being as prosperous as Chile or Panama; it would need to more than double its income to match Canada’s and treble it to match our own. The central government exercises only incomplete control over some Mexican territory, particularly along the border, and the organs of the Mexican state routinely are overmatched by the organs of Mexican organized crime. The flow of illegal immigrants across the border into the United States is lawless and intolerable — and also entirely understandable, as is the related flow of asylum-seekers from points south.The Trump administration is right to put getting control of illegal immigration — and getting control of the southern border — at the top of its agenda. Democrats and mainstream Republicans still scratching their heads about the ascent of Donald J. Trump need look not much further than that issue to understand his attraction and their failures.But, as it turns out, getting control of the border is hard work, and securing funding for a border wall and other measures requires a measure of political competence that President Trump simply does not have and is not likely to acquire. His admirers believe him to be a master negotiator, always three steps ahead of the game; in reality, congressional Republicans got what they wanted out of the Trump administration — tax cuts — and left him hanging on immigration, putting off meaningful action until the loss of the Republican majority in the House of Representatives took such action off the table as a practical matter.And so the border remains unsecured.President Trump loves tariffs, and so he has set upon a new strategy for capping the flow of illegal immigrants and asylum-seekers across the southern border: He proposes to bully Mexico City into doing it for him, threatening to impose tariffs on Mexican imports — starting at 5 percent, escalating to 25 percent — unless the Mexican government waves the magic wand it does not actually possess and seals off the U.S. border from the southerly side.This policy is unlikely to work, for several reasons. The first and most important is that it is not at all clear that the Mexican government has the capacity to act as demanded, especially given the fact that it would be obliged to act in part through its famously corrupt police forces. But there are other considerations, too: Contrary to President Trump’s beliefs, tariffs are paid by the importing party, not by exporters, and the incidence of this tax — i.e., the question of who actually ends up paying it — ends up being a very complicated question. Some costs will be passed along to American businesses and consumers; some may be borne by Mexican exporters; some may be passed on to workers in the form of downward pressure on their wages or in productivity demands. Mexican inputs touch the entire North American supply chain, including the parts of it involved with politically sensitive businesses such as automobile manufacturing and agriculture, the latter of which already is reeling from the damage inflicted by the president’s ill-considered trade war with Beijing. That means that Andrés Manuel López Obrador & Co. may calculate that they can wait out the Trump administration. The outcome is far from foreseeable or fixed.The better long-term approach for the United States happily joins self-interest to open-handedness. What this requires is recognizing that we as a country are blessed to have Canada for a neighbor and would be radically better off if the country to our south were economically and politically something more like Germany and something less like Equatorial Guinea — or at least moving in that direction. Mexico is not Haiti or even Venezuela. It is not Pakistan. It is a middle-income country bordering a very wealthy one with which it has a long and fruitful but difficult relationship. We do not need a Marshall Plan for Mexico, but we do need a campaign of North American investment and institution-building there. Some of that was in fact accomplished through NAFTA, and Mexico today is a very different place from what it was in the 1980s. (In 1980, the Mexican peso was trading at 23 to the U.S. dollar; by the 1993 apex of Mexico’s currency crisis, the peso was trading at 3,000 to the dollar.) But there is a long way to go.Of all its destructive tendencies, Trumpism’s most destructive is misunderstanding the world and its economic relations as a zero-sum game. A richer Mexico would be a blessing to the United States, and a poorer one would represent an expense, a diminished market, a lost opportunity — and a danger. Compared to the rest of North America, Mexico is both weak and poor. Even if President Trump’s tariffs worked, the result would only be to leave Mexico even weaker and even poorer. And that would leave the United States weaker and poorer, too, even if there are a great many people in Washington who are too ignorant and blinkered to understand the fact.