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Chartbook 218: "So far from god" ... friend-shoring and the debate in Washington over whether to bomb Mexico.
As tension over Taiwan mounts and military alliances form around South China Sea we face the remarkable situation that the world’s principal artery of trade and investment is threatened by talk of war. You might think that economic stakes to the tune of trillions of dollars would rule out the possibility of a clash. But both the Chinese and the US currently envision fighting not just over the sovereignty of Taiwan but also over far more trivial territorial disputes.
At the same time, Europe is engaged in an economic struggle with Russia, a development which many also judged would be impossible given the stakes involved. Admittedly, some dismiss the sanctions as so ineffective that they amount to a phony war. Be that as it may, the antagonism is real.
Unsurprisingly, this surge in geopolitical tension raises talk of near-shoring and friend-shoring. But that begs the question, where is safe?
As far as the United States is concerned one immediately thinks of the North American region - what was once NAFTA and since 2020 has been rebadged as USMCA. Taken together, the USMCA is far and away the most important hub of US trade. It is indispensable for manufacturing systems, including first and foremost the North American motor vehicle complex.
Here, surely, lies the core of a pacified economic zone. This has launched a debate about Mexico’s evolving role in global supply chains and its ability to take advantage of the opportunities opened up by decoupling from China.
Clearly, the USMCA is a case of near-shoring. But what about the politics? As far as Canada is concerned, the label of friend-shoring will do. But look to the South and your answer depends on how you judge the fraught relations between the US and Mexico. On top of chronic tensions over migration, in Washington right now there is a live debate about whether the next President should order the bombing of Mexico. Surreal as it may seem, a vocal part of the US political elite is contemplating the use of military force not just with regard to China, but with regard to the other main artery of US economic globalization as well. Freakish as this may seem, given the prominence of the figures involved, and the structures of underlying conflict, it would be dangerous to dismiss this as political theatre.
Listeners of Ones and Tooze have been calling for some time for us to do an episode of Mexico. Cam and I took on the challenge this week.
It is at best a first bite at this huge topic. There is so much more to cover on the broader development of the Mexican economy, a fuller assessment of NAFTA/USMCA etc. We will revisit it certainly before the elections in 2024.
The most important take away for me in putting together the episode is, that if Mexican-American relations demonstrate anything it is that the naivety of eliding near-shoring and friend-shoring. Proximity brings safety and harmony only if you have sorted out your neighborly relations. That is far from being the case between Mexico and the USA. As the famous saying goes, “poor Mexico, so far from god, so close to the US”.
Think - in bullet point form - about the factors that shape this tension:
Since independence in 19th century, the Mexican state’s existence has been defined by its need to maintain autonomy from its more powerful Northern neighbor.
Racism and cultural condescension projected from the rich WASP North to the poor, Spanish-speaking, Latinx, Catholic South, frame the entire relationship.
The nationalist ideology of the Mexican revolution built a firewall between US and Mexican politics. Those embers cooled over the course of 20th century, but as Mexico’s President since December 2018, Andrés Manuel López Obrador (AMLO) demonstrates, the flames of nationalism can be easily rekindled, not just on the US side.
Mexico’s oil industry once integrated the country into the world economy as a fossil fuel exporter and major player in OPEC. Nationalized in the 1930s it gave the Mexican national economy a powerful base. The decline of the industry in recent decades is profoundly discomforting for nationalist. They see no good future for Mexico as a near-shoring manufacturing replacement for China.
Migration from Mexico to the USA, which expanded massively from the late 1960s to the 2010s, is a unifying link at a personal level and a huge source of remittances - $60 billion per annum plus - but the “unresolved” stance of the US towards migration and the mounting crisis in Central America creates millionfold human misery and a running sore in political terms.
Build the Wall: Right-wing xenophobic political entrepreneurs in the USA repeatedly mobilize around the migration issue. Increasingly, this is not simply a Mexican-American but a Central American issue as well.
The drugs wars, again shaped by proximity, have been a half-century disaster. The cartels profoundly challenge the rule of law and the authority of the Mexican state.
The explosion of Fentantyl consumption and supply raises the issue of narcotics to a new level of urgency and China’s role in the trade gives the issue a particular toxicity.
In global geoeconomic terms, a fact which the US takes too easily for granted, is that Mexico, has hitherto chosen a path not so much of non-alignment as neutrality. Likewise, Mexico has been by-passed by the huge rise in China’s economic influence in Latin America. In an increasingly polarized world, in which America’s influence declines in relative terms, this neutrality may be harder and more expensive for Mexico to maintain.
Given the huge level of entanglement between Mexico and the United States and the many crises that arise - an obvious case of polycrisis - the political architecture to resolve tensions between the two countries is astonishingly fragile. USMCA (the replacement for NAFTA since 2000), is not - like the EU - a “whole-of-government” affair, but is owned by specialized trade ministries. Leader-level meetings take place on the whim of the political personalities involved. They ceased during the Trump period. The lack of powerful institutional anchoring means that both governmental practice and political discourse on both sides is relatively disinhibited in imagining alternative futures for the Mexican-US relationship. It is hard to know what can be ruled out and what must be ruled in. It is as though Franco-German relations had to be continuously reinvented without institutional continuity.
In short, the boundaries of what is “near” and what is “friendly” are not given in US-Mexican relations. They are constantly negotiated, defined and redefined in an unequal, historically path-dependent power-play between the two countries.
Since Russia’s invasion of Ukraine and the election of Lula, all eyes in the Western hemisphere have been on Brazil and how it has positioned itself between Washington and Moscow. By comparison, it is remarkable how low Mexico has flown under the radar, receiving only a passing mention in the roster of the new non-aligned movement, overshadowed by the likes of Lula and Modi.
This was true also of the original non-aligned movement originated in the 1950s, in which Mexico’s place was that of an observer. Likewise, Mexico played no role in BRICS in the early 2000s. The Vincente Fox administration of the time did not make an easy bedfellow with the pink tide led by Lula’s Brazil. The shift to the left under AMLO since December 2018 and the polarization of global geopolitics has reopened these questions.
Since Russia’s invasion of Ukraine, Lopez Obrador has maintained a position of neutrality in the conflict. AMLO has roundly condemned the United States for rushing aid to Ukraine whilst ignoring the refugee crisis and the disastrous security situation in Central America. At the start of the war a clutch of House Deputies from AMLO’s coalition raised heckles by launching a “Mexico-Russia Friendship Committee”. Mexico has refused to sanction Russia or to send military assistance to Ukraine and has condemned the European Parliament for sending military aid to Kyiv.
Mexico is not oblivious to the stakes involved. Together with France, Mexico proposed a resolution to the U.N. General Assembly that gained overwhelming support, blaming Russia for the humanitarian crisis in Ukraine and calling for an immediate cease-fire for the sake of millions of civilians. But when it came to the General Assembly on the matter of Russia’s suspension from the Human Rights Committee whereas Argentina, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras and Peru all voted in favor of the resolution and Bolivia, Cuba and Nicaragua voted against, Mexico joined Brazil and El Salvador in abstaining.
Zelensky has spoken to the Mexican parliament, but at the invitation mainly of opposition deputies. For AMLO himself, the priority is to end the war. He has denounced the backing of Ukraine by the US and its Western allies as a cynical proxy war, summarized by the motto: “I’ll supply the weapons, and you supply the dead.”
Not only has Mexico refused to join the American-led coalition against Russia, AMLO’s foreign minister, Marcelo Ebrard, one of leading candidates to succeed him in 2024, has expressed sympathy for the values of BRICS. South Africa’s Foreign Minister Naledi Pandor claimed in an interview that she had received an approach about a possible BRICS membership for Mexico. This rather remarkable claim was picked up by DW, but seems not to have been confirmed or denied.
For the most part the USA has thought it best to comment as little as possible on Mexico’s positioning. It suits everyone to give Brazil pride of place. But America’s commander for the Northern Command General Glen VanHerck has warned a Senate Committee, that the GRU - Russia’s military intelligence - has deployed the largest proportion of its spies to Mexico. As in the Cold War, Moscow’s oversized embassy in Mexico City appears like an espionage center. Those remarks led President Lopez Obrador to respond in typically combative style: “Mexico is a free country, independent and sovereign, we are not a colony of Russia, China or the United States.”
One of the structural forces driving Brazil’s non-alignment with the US front on Ukraine is the rise of China. China’s booming trade with the Latin American region has been one of the dramatic stories of the last two decades. Between 2002 and 2019 trade volume exploded from $17 billion to $315 billion per year, whilst China’s investment in the region in the 2010s exceeded $150 billion. For Brazil and Chile, China is now the leading trade partner, not the US.
Mexico was, until recently, an exception to this pattern. As a low-wage manufacturing hub with a declining oil sector, its complementarities with Chinese growth were less obvious. Mexico’s share of China’s investment and trade in Latin America was tiny. Indeed, opposing China’s “invasion” of the Western hemisphere has been a source of legitimacy for Mexican politicians. The Fox administration (2000-2006) aligned with angry Mexican manufacturers facing the shock of China’s admission to the WTO. Stereotypes of aggressive and intrusive Chinese predominate in the Mexican media.
Again, there are signs of change in Sino-Mexican relations. Mexico now recognizes China as a key partner. But as Washington has made clear, on China the stakes are high. Although China is not mentioned explicitly in the USMCA Treaty, Article 32.10 stipulates that if any of the three trade partners intends to enter into a free trade agreement with a “non-market economy,” it must inform the other partners at least three months prior to commencing negotiations. If an agreement is reached with the “non-market” partner, the parties to the USMCA are free to abrogate the trilateral agreement. In terms of geoeconomic alignment, Article 32.10 signals that Mexico has to choose, between the US and China.
In less formal terms, one veteran diplomat has remarked that the United States made clear to Mexico that it would face sanctions if it joined China’s Belt and Road Initiative. Washington asked President Peña Nieto explicitly not to join the Asian Investment Infrastructure Bank.
In 2020 Beijing spied an opportunity to gain leverage. The world faced the COVID pandemic. The US in the last year of the Trump administration was preoccupied with domestic crises. China stepped in to supply Mexico with 35 million doses of CanSino vaccine. This elicited a friendly exchange of messages with Secretary of Foreign Affairs Marcelo Ebrard who had made an official visit to Beijing in 2019. Ebrard followed up with the promise that Mexico “will expand the strategic partnership of both nations.”
And this is not merely talk. The Mexican border state of Nuevo León with its capital Monterrey, has positioned itself as a key hub for the flourishing China-Mexico investment relationship. The state’s governor, the brash, 35-year Samuel García, went to Davos to declare that “Nuevo León is having a geopolitical planetary alignment”. What that means in practice is that of the $7 billion in foreign investment that has poured into the state since October 2021, 30 percent came from China, second only to the US.
As relations between China and the US deteriorate, it is not only Western firms that have to adjust, Chinese producers too are looking for ways to maintain access to the US market. This is not the kind of inter-governmental agreement that would trigger Article 32.10 of USMCA, but it nevertheless rewires US-Mexican-Chinese economic relations.
However, to talk about Mexican-American-Chinese relations right now by reference to Chinese furniture factories in Monterrey, would be a bit like talking about Taiwan and mentioning only the microchips. The real questions about near-shoring and friend-shoring come into focus when we move from the legal to the illegal economy, from furniture and motorvehicles to organized crime, the lethal synthetic opioid epidemic in the United States and above all Fentanyl.
The rise of the Fentanyl business has given a catastrophic twist to the long-running disaster of the Mexican-American drug wars. Fentanyl embodies a perverse kind of triangular globalization in which Fentanyl and its precursors flow from China to Mexico, where the cartels manufacture them into illegal narcotic product, which is then trafficked to the United States and exchanged for cash and weapons. The weapons enable the cartel to build and consolidate their extra legal power bases and compete for turf. The cash is partly recycled into the illegal economy, partly laundered. Increasingly, Chinese money laundering channels take advantage of the billions in drug dollars to evade the exchange controls that China put in place in 2015.
The overall values of these flows is estimated to run to many tens of billions of dollars per annum. This is perhaps one tenth of the volume of legal trade between Mexico and the United States, but amplified by intense violence it is enough to create havoc. Annually, the cartel wars claim the lives of perhaps as many as 30,000 Mexicans. In the US the addiction epidemic claims over 100,000 lives of which roughly three quarters are down to Fentanyl.
In an ideal world of governmental fantasy, the United States, China and Mexico would identify the surge of drugs as a common global problem. They would cooperate to identify and interdict the drug producers and smugglers. Meanwhile, the US would introduce sweeping social reforms and public health policies to cut the demand for drugs, which is the ultimate source of the problem. The US would also introduce gun controls, suppress the legal trade in firearms and comprehensively control firearms exports. High-powered assault weapons and ammunition would no longer be freely available to the cartels to import to Mexico. Meanwhile, the Mexican state would rid itself of corruption, suppress the challenge to state authority from the cartels and embark on extensive economic development programs to provide alternative sources of income.
Clearly, in 2023 we are very far from any such fantasy. Not only is geopolitical and political tension reducing cooperation but clashes over the narcotics crisis are raising political tension in a dangerous way.
It has not always been so. There were moments of Sino-American cooperation around Fentanyl suppression in the 2010s, but all counter-narcotics cooperation has been suspended by China since Pelosi’s visit to Taiwan. Likewise, Mexican American cooperation has been run down by the AMLO government which views the American DEA officers operating in Mexico as a fundamental intrusion on Mexico’s sovereignty. In the US, the structural factors that drive deaths of despair are as prevalent as ever. Comprehensive gun control has no chance in Congress. AMLO, though he has deployed the military in the drug wars, shows no sign of making a decisive breakthrough to reassert control. Increasingly, the best to be hoped for is to reduce the level of violence. This, however, not only perpetuates the disastrous situation in many communities in both Mexico and the United States. It also holds open the door to a further escalation in political tension between the United States and Mexico. This is exploited particularly by Republicans on the US side as a issue on which to demonstrate red-blooded all-Americanism and as a useful stick to beat Biden with. In so doing Republican trouble makers and ideologues reaching for the hammer with which America’s political elite often seeks to treat problems, one of America’s undisputed strong suits: military power.
When Trump was in the White House this impasse triggered wild speculation about US military strikes against Mexico. According to his Defense Secretary Esper, Trump in 2019 asked for options to use military force against the Mexican cartels unilaterally.
In opposition, the GOP has not calmed down. Inside Trump’s entourage they apparently consider the failure to launch strikes into Mexico as one of the missed opportunities of his Presidency.
As Alexander Ward reported for Politico in April 2023:
" In recent weeks, Donald Trump has discussed sending “special forces” and using “cyber warfare” to target cartel leaders if he’s reelected president and, per Rolling Stone, asked for “battle plans” to strike Mexico. Reps. Dan Crenshaw (R-Texas) and Mike Waltz (R-Fla.) introduced a bill seeking authorization for the use of military force to “put us at war with the cartels.” Sen. Tom Cotton (R-Ark.) said he is open to sending U.S. troops into Mexico to target drug lords even without that nation’s permission. And lawmakers in both chambers have filed legislation to label some cartels as foreign terrorist organizations, a move supported by GOP presidential aspirants."
Rolling Stone, which broke the story, describes the mood in the Trump camp as bellicose
“‘Attacking Mexico,’ or whatever you’d like to call it, is something that President Trump has said he wants ‘battle plans’ drawn for,” says one of the sources. “He’s complained about missed opportunities of his first term, and there are a lot of people around him who want fewer missed opportunities in a second Trump presidency.”
Lindsay Graham has weighed in promising that “We’re going to unleash the fury and might of the United States against these cartels,”. He called on President Biden to “give the military the authority to go after these organizations wherever they exist.”
In the pages of the Wall Street Journal, Trump’s Attorney General and long-time warrior of the American right, “Bill” Barr dressed up a legal case for intervention, making sure to distance himself from any “nation-building” ambitions.
The cartels have Mexico in a python-like stranglehold. American leadership is needed to help Mexico break free. We can’t accept a failed narco-state on our border, providing sanctuary to narco-terrorist groups preying on the American people.
Meanwhile, Senator John Kennedy of Louisiana made explicit the utter contempt for America’s neighbor that runs through Republican thinking about Mexican-American relations. Speaking of the question of enlisting AMLO and the Mexican government in America’s drug enforcement efforts Kennedy remarked:
“Make him a deal he can’t refuse … Without the people of America, Mexico, figuratively speaking, would be eating cat food out of a can and living in a tent behind an Outback.”
These outrageous remarks came not off the record, but during a Senate appropriations subcommittee hearing in which Kennedy was pressuring Drug Enforcement Administration administrator, Anne Milgram to unleash the US military and law enforcement officials on Mexico to “stop the cartels”.
The setting for Kennedy’s comments is telling. Given the US constitution, Biden administration officials and America’s military leaders, though they are opposed to any unilateral moves against Mexico, are forced to reply to even the most outrageous demands from the Republican side. The surreal result is that Washington is now engaged in an earnest debate about whether or not to bomb Mexico. In this debate the opponents of bombing America’s neighbor and one of its most important trading partners are forced to justify their refusal on first principles.
As Politico somewhat blandly remarks, it would appear that “President Joe Biden doesn’t want to launch an invasion”. This is admittedly something of a relief. Given Trump’s preferences it should not be taken for granted. When asked by journalists, National Security Council spokesperson Adrienne Watson affirmed that “The administration is not considering military action in Mexico.”
In recent Senate and House hearings about the President’s defense budget request, Chairman of Joint Chiefs General Milley and Defense Secretary Lloyd Austin faced multiple questions from Republicans asking about the possibility of U.S. military intervention or for some greater role for troops in stopping the inbound flow of drugs. Milley, who as America’s top military officer must pay homage to the principle of civilian supremacy, was reduced to stating that he would not “recommend” unilateral strikes on Mexico.
The problem for those favoring restraint is that the situation is truly disastrous, they have no good alternatives to offer and America’s planetary conception of its own security provides no official with any wiggle-room. It is their duty to protect Americans everywhere from every threat and to use the tools at their disposal to do so.
So in March 2021, Head of U.S. Northern Command General Glen VanHerck stated that 30%-35% of Mexico constitutes an “ungoverned space”, which as he warns opens the door to cartels and their foreign friends. That then raises the question of how any American President could stand by and allow a lethal threat to America to develop on its border without acting. As the explosive memo to a putative President Trump highlighted by Rolling Stone, remarks: “It is vital that Mexico not be led to believe that they have veto power to prevent the US from taking the actions necessary to secure its borders and people.”
At one level this is an outrageous carte blanche for an infringement of Mexican sovereignty and a forever war on drugs. At another level it is merely the assertion of the basic principle of self-defense in the face of an unregulated transnational threat on America’s borders. America’s sovereignty and the paramountcy of its own interests means that Mexico can have no veto. To concede anything less is tantamount to treason. And perhaps most disturbingly it is not altogether easy to separate this argumentative logic from the national security proviso around which Janet Yellen organized her recent speech on Sino-American economic relations. Or for that matter to distinguish this assertion of national autonomy on drugs policy from the belligerent defense of America’s position on steel tariff in the face of censure by the WTO. As USTR Spokesperson Adam Hodge put it:
The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security.
Connecting the dots to intervention in Mexico, Barr in his WSJ pieced spelled out the logic: :
Under international law, a government has a duty to ensure that lawless groups don’t use its territory to carry out predations against its neighbors. If a government is unwilling or unable to do so, then the country being harmed has the right to take direct action to eliminate the threat, with or without the host country’s approval.
In conventional debate about the new era of geopolitics we still draw neat boundaries. Russia and China are linked, which then prompts the search for wholesome and safe near-shoring and friend-shoring options. USMCA and EU-US relations are conventionally allocated to that bucket. This assignment broadly overlaps with other new dichotomies like the one favored by President Biden between democracies and autocracies.
Republican discourse disrupts this neat packaging with its lack of enthusiasm over Ukraine. But also with the disinhibited aggression which it directs towards Mexico.
You might be tempted to dismiss the rantings of Trump, Graham or Kennedy. But it would be dangerous to discount it merely as political theater - the GOP might very well win in 2024. We do not know what lessons might be learned by a second Trump Presidency.
Furthermore, their expostulations reveal a more general tendency. Faced with truly entangled problems of domestic and global governance thrown up by the polcyrisis, there is an in-built bias in the American government system, dramatically reinforced by the political entrepreneurship of America’s nationalist right-win to reach for military solutions. The Ukraine crisis has provoked this tendency in Europe. Taiwan does this in East Asia and the drugs and migration problems does the same even on America’s own border with Mexico. In each case the underlying conflicts are very real. But so too is the common thread in the American response. As the Ukraine case demonstrates this is very much a bipartisan tendency. The distinctive contribution of the Republicans is the openness with which their disinhibited nationalism forces the American political class to discuss its options.
One cannot but must admire the efforts by Biden’s team to devise a logic for this dangerous new world. Jake Sullivan’s speech at Brookings is the clearest effort to date to do that. But as I argue in my op-ed for the FT this weekend, to imagine cleverly engineered industrial policy as the basis for a new Washington consensus seems wildly optimistic.
What we must surely fear is the only real common denominator of policy-making in Washington right now is the Pentagon budget, where the financial demands of America’s new theaters of conflict run together. Tellingly it was the one element of Federal spending which the two parties in Washington could agree to exclude from. the brinksmanship of the budget ceiling stand off.
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