A Harvard-educated economist, Carlos Salinas de Gortari, was once dismissed as a bland technocrat. No more. Since becoming president of Mexico in late 1988, he has been full of surprises. He jailed the corrupt leader of the oil workers' union. He has relaxed restrictions against foreign investment, sold state companies and reduced inflation. His latest surprise -- formally presented to President Bush last week -- is a proposed free-trade agreement between the United States and Mexico.
Please take note. While we are transfixed by the upheavals in the Soviet Union and Eastern Europe, the great drama in Mexico may ultimately affect us more. Consider some numbers. Our exports to Mexico ($25 billion in 1989) are already six times our exports to the Soviet Union ($4.3 billion). And Mexico's population (85 million last year) roughly equaled the combined populations of Poland (38 million), Romania (23 million), Czechoslovakia (16 million) and Hungary (11 million).
Salinas's proposal is a good one -- but no panacea for U.S.-Mexican relations. Greater trade doesn't automatically create greater good will. French- and English-speaking Canadians have been trading for two centuries; they are also wondering whether they belong in the same country. Japanese-American relations have deteriorated with more trade. Economic determinism, the idea that everything follows economic interests, has its limits. Culture and history also count. So we should not expect miracles from a U.S.-Mexican trade agreement.
It would merely acknowledge that neither country can deal with the other as it has in the past. For decades, there's been a mutual effort to deny geography. Americans tended to ignore Mexico. The Mexicans resisted U.S. economic domination. Salinas's proposal concedes that his country can't prosper without the United States. And Americans now recognize that Mexico's welfare affects our welfare.
Salinas's message is simple: we will send you either goods or people. Put another way, Mexicans will either get jobs in Mexico or they will get jobs in the United States. Population pressures are awesome. The World Bank estimates that the number of Mexicans will hit 105 million by 2000 and may reach 141 million by 2025. There is no practical way for us to close our border. Nor can we expect Mexico's cooperation on other problems -- drugs, immigration, pollution -- if we disregard its economic distress.
A free-trade agreement would eliminate most tariffs between the two countries. These are actually modest and would probably be phased out over five to 10 years. Our tariffs average 4 percent and Mexico's 11 percent. Each country has some specific limits that are much tighter. For example, the United States has seasonal restrictions on Mexican vegetables. And Mexico still requires special licenses for about a fifth of its imports, including cars. But the main significance of an agreement would be symbolic. It would commit each country to keeping trade borders open to the other.
What Salinas hopes is that even the prospect of such an agreement would quickly increase foreign investment. Mexico would be seen (the theory goes) as a safe exporting platform to the huge U.S. market. There's the rub: the AFL-CIO complains bitterly that the result would be a loss of U.S. manufacturing jobs, as American companies open new factories in Mexico to take advantage of low wages ($1 to $2 an hour). In 1989, U.S. companies already accounted for 63 percent of Mexico's $26.6 billion of foreign investment.
There are two answers to this objection.
First, some of the new U.S. investment in Mexico would have been made abroad anyway. "Production may shift from Asia to Mexico," says Guy F. Erb, a business consultant in Washington. Second, the more Mexico exports, the more it imports -- and about two-thirds of Mexico's imports come from us. A pickup in Mexico's economy should help the U.S. economy. Some workers and industries in both countries would suffer from extra competition. But there shouldn't be an overall loss of jobs in either country. Greater trade should raise everyone's living standards.
The paradox is that, as commerce grows, so does our awareness of the vast contrasts between the two societies. Economist Mark Anderson of the AFL-CIO points out that, aside from low wages, Mexican factories also have much longer working hours, laxer safety standards and poorer pollution controls than U.S. plants. Democracy in Mexico is shaky. Salinas's Institutional Revolutionary Party is only grudgingly sharing power. Election fraud remains, as does the corruption endemic to much of Mexican life.
We delude ourselves if we think greater prosperity will soon, if ever, erase these differences. Because more trade leads to more contact, it may actually worsen some U.S.-Mexican tensions. But what's the alternative? We cannot move Mexico to, say, the Indian Ocean. And economic stagnation and political instability in Mexico would merely create larger problems for us.
The key to Mexico's prosperity is persuading Mexicans -- not just foreigners -- to invest in the country's future. Capital flight over the past few decades may total $50 billion, reports economist Rudiger Dornbusch of the Massachusetts Institute of Technology. Reversing this in a major way would propel economic growth and ease the burden of a huge overseas debt. There's no guarantee that Salinas can do that. But he has made a start in creating a better investment climate. Inflation has dropped to about 20 percent from more than 130 percent in 1987. The budget deficit has been cut sharply, and more than 600 state enterprises have been sold.
The great drama in Mexico today is whether it can successfully move from state economic control to a market economy and more democracy. The easiest way for us to doom this effort would be to reject the free-trade proposal. That would represent a ringing vote of no confidence. Congress will ultimately make the decision, probably sometime early next year, whether to begin earnest negotiations. It should say yes. We cannot repeal the history of mutual suspicion between Mexico and the United States. But we must recognize that suspicion is no longer a viable policy.