World - The Slow Decline of North America

The Slow Decline of North America
Andres Oppenheimer

When President Barack Obama welcomed Mexican President Felipe Calderón at the White House last week, the U.S. president celebrated "a new era of respect and cooperation and partnership between our two countries." Unfortunately, it's none of the above.

On the contrary, almost two decades after the 1994 free-trade agreement among the United States, Mexico and Canada, the idea of North American integration is losing steam. China has overtaken Mexico as the second-largest U.S. trading partner, and trade between the three North American countries is diminishing as a percentage of their total trade.

A recent report by the Canadian Foundation for the Americas, Focal, showed that exports between the three North American countries have fallen significantly over the past 10 years: while mutual exports amounted to 55 percent of the three countries' global exports 10 years ago, the percentage fell to 46 percent in 2009.

Total trade between the three North American countries -- exports plus imports -- fell from 46 percent of their total trade 10 years ago to 40 percent in 2009, it shows.

As for U.S. investments in Mexico, they have boomed in recent years, but their share of overall foreign investments in Mexico have declined from 40 percent in 1987 to 32 percent in 2008.

While China's commercial success and stricter border control measures after the 9/11 attacks were some of the reasons behind the decline of North American integration, "the far more important reason is the absence of leadership'' by the leaders of the three countries, the report said.

Lack of leadership

Indeed, the leaders of the three countries held a summit in Mexico in August 2009, where they vowed to meet again in Canada in 2010 to further advance the integration agenda. But the Canada summit never took place, and was replaced by a foreign ministers' meeting to discuss Haiti, and other regional issues.

"The three governments have reminded us why North America is declining: they lack imagination and leadership," wrote Robert Pastor, co-director of American University's Center of North American Studies, author of the Focal report and of the forthcoming book, "The North American Idea."

"We need to start over with a big North American idea, one based on the simple premise that all three countries benefit when one succeeds, and we are all hurt when one fails," he added.

What exactly should be done, I asked Pastor in a telephone interview.

The first step would be moving to adopt a North American common external tariff for imports from outside the region, which would substantially ease -- and reduce -- the cost of trade within North America, he said. That would allow U.S. companies to produce goods at much lower costs, and be much more competitive globally, he said.

Other steps would include harmonizing rules to reduce controls -- a Canadian trucker needs 10 credentials to go from Canada to Mexico -- and setting up an infrastructure plan to connect roads from southern Mexico to the rest of the continent, he said.

"We export six times more to Mexico than to Brazil," he added. "We need to deepen our integration to become more competitive with Asia."

Political obstacles

But is all of this doable with an Obama administration that needs the support of anti-free trade labor unions, and a new Republican-controlled U.S. House filled with anti-immigration zealots, I asked Pastor.

"Yes," he said. "The one issue that could connect the two parties is economic competitiveness and security. This could be one of the issues where Democrats and Republicans can find a new center."

My opinion: I agree. I was dismayed by the joint Obama-Calderón press conference on March 3, where the Mexican president explicitly called for a "regional perspective" to take advantage of each country's competitive advantages and "turn North America in its entirety into the most competitive region of the world." Obama sidestepped the idea, and focused on the U.S.-Mexico issues of the day.

The Obama administration urgently needs to deepen economic integration with Mexico, and with the rest of Latin America, if it is serious about making the U.S. economy more competitive and doubling U.S. exports within the next five years.

China is forming a mighty trade bloc with the 10-member Association of East Asian countries. The European Union has expanded into a 27-country market. Can the United States go it alone? It can't, but the Obama administration and Congress have yet to realize it.