The surprising conclusion to the U.S. presidential campaign has some Canadian policy thinkers urging a break with Mexico on free trade. But disconnecting from Mexico not only makes no business sense, writes Laura Dawson, it’s also the wrong course for a neighbour in need.
By Laura Dawson, Dec. 5, 2016
The U.S. election has fuelled a potential shakeup of U.S.-Mexico relations. This is leading some in Canada to rethink Canada’s relatively recent policy re-engagement with Mexico as well. Despite U.S. uncertainty, Canada must stay the course. Disengagement from Mexico will not achieve any policy goal. It will not improve Canada’s relations with the United States, nor will it resurrect the fabled special relationship between Canada and the United States of bygone years.
Many have speculated that if NAFTA were dissolved, the Canada-U.S. free-trade agreement would remain intact, providing Canada with preferential access to the United States that few other countries would enjoy. Some see a return to bilateralism as a relative advantage over Mexico, but reverting to a 1980s bilateral trade agreement would provide far fewer benefits than an intact NAFTA does.
Disconnecting from Mexico does not make good business sense.
The Canada-U.S. free-trade agreement reflects trade priorities circa 1989: before the digital economy, before advanced manufacturing and before the consolidation of supply chains stretching across multiple economies. The FTA provides a pretty good framework for trade in raw materials but it is in no way up to the challenge of the knowledge-intensive, innovation economy that Canada is seeking to build.
Disconnecting from Mexico does not make good business sense.
First, Canada is able to retain high-value jobs in such sectors as aerospace and autos because Mexico is able to provide cost-competitive assembly skills. Working together, Canada and Mexico fulfill essential nodes of the supply chain. To be clear, while human capital is one of Mexico’s central contributions to the North American value chain, it is not providing cheap labour. The Mexican labour force is skilled, reliable, adaptable and efficient – and that makes all of us more efficient.
Second, Mexico is an ideal partner because of demographics. Canada’s population is aging and retiring from the work force while the majority of Mexico’s population is under the age of 40. The two economies provide natural labour-market complementarities.
Third, NAFTA has helped to stabilize and grow Mexico’s economy. The Mexican middle-class market now exceeds 40 million people. As Mexico becomes more prosperous, Canada succeeds as well. When Mexican consumers have more disposable income, they start looking for the products Canada has to sell such as consumer goods, health products, luxury food products, insurance and technological know-how in areas such as construction, engineering and green technology.
Fourth, the hard work of legal and commercial integration has already been done. More than 20 years of NAFTA have created a common infrastructure of trade rules and practices that have become the gold standard for other trading blocks around the world. Despite differences in language, development and culture, NAFTA has made it easier for Canadians to do business in Mexico than in any other developing country.
Fifth, business investment has diversified to Mexico because of proximity to skills and consumers. Mexico is the fastest growth market for many iconic North American brands. Powerful U.S. business interests are certain to be pushing back against new policy proposals that promise to cancel the value of their Mexican investments and significantly increase input and labour costs.
Supporting a neighbour through uncertain times is the right thing to do.
Meanwhile, the strengthened relationship between Mexico and Canada is still relatively fragile. The fractious visa issue has been resolved but the two countries are still separated by language, by distance and an economic relationship that has been mediated by the United States.
It will not be easy for Canada to maintain strong bilateral ties with Mexico, should the United States opt out of the partnership, but it is necessary. While the United States figures out the new pattern of its foreign and trade priorities and its new relationship with Mexico, Canada has an obligation to its southern neighbour to stay the course.
The alternative – abandoning Mexico – offers no economic or foreign-policy benefits. Most important, supporting a neighbour through uncertain times is the right thing to do.
Laura Dawson is the director of the Wilson Center’s Canada Institute.
Editor’s Note: This is an edited version of testimony to the Senate standing committee on foreign affairs and international trade, delivered Nov. 24, 2016.
