What Trump gets wrong about U.S. neighbors

CNN.com | 7 April 2016
By Parag Khanna

American voters are getting wise to Donald Trump's radical protectionist fantasies. As the primaries swing toward the Northeast, a region even more dependent on trade than Wisconsin, serious economic and foreign policy issues will continue to plague the Republican front-runner.

Let's start with Trump's now infamous pledge to erect a giant (and in his words, "beautiful") wall on the Mexican border -- and to make Mexico pay for it. The plan betrays total ignorance as to the real dynamics between our continental neighbors and how they benefit America. Perhaps he doesn't realize that Mexican migration to America is now net neutral: As many Mexicans are going back to Mexico's growing economy as coming to work in the United States. We will miss them when they're gone, and so should Trump.

A businessman should at the very least understand the most basic law of economics: supply and demand. It applies to demographics as well. Mexicans come to America, often taking jobs that American citizens don't or won't. But it's work that still needs to be done nonetheless, whether farming or construction. They lower the costs to businesses of fulfilling their mandates, and ordinary households to keep up their maintenance, child care and other functions. So integral are migrants to the fabric of American society that New York legislators have been weighing allowing even undocumented immigrants to vote.

America is aging quickly. As the median age crosses 40, aggregate consumption will begin to fall as people begin to save more for their later years. The country will therefore need more young immigrants from Latin America, Asia and beyond to buy homes and raise families. That's exactly what's happening in Michigan right now. And who will build those homes and care for aging Americans? Robots? Not yet. We need more immigrants.

No country should take its immigrants for granted, whether Indians, Chinese and Russians running Silicon Valley tech giants, or those picking almonds during California's drought. When the Canadian dollar was riding high in the commodities boom, Mexicans passed straight through the United States to our giant northern neighbor and sent their remittances from there. America's loss can easily be another's gain.

Maybe Trump should go and see the reality on the ground around where he would erect his beautiful wall. It turns out that both the American and Mexican border populations have increased by 20% in the past decade to capitalize on each other's growing business opportunities. Those are yet more voices that Trump or any other political figure should be listening to before making proclamations from their private jets.

Whatever happens above ground, the United States and Mexico are getting more connected below it. With Mexico's population nearing 130 million and energy demand growing rapidly, its Pemex petroleum company was recently liberalized, paving the way for American asset managers BlackRock and First Reserve to close a major deal last year to fund a gas pipeline from Texas into Mexico. Mexico has become an absolutely vital partner for American companies and investors. Its consumption is surging, which is good for American retailers, and its auto industry is now larger than Detroit. Japanese, German and American car companies are all producing in Mexico, but American auto parts producers are winners from this because they are the preferred suppliers.

According to a Brookings Institution study, just 20 pairs of cities across North America trade a combined $500 billion annually, by far the largest geographic share of America's total world trade. Furthermore, because Mexico has better trade agreements with Latin American countries such as Brazil, American carmakers exporting from there will have enhanced access to lucrative expanding car markets. Our supply chains are increasingly integrated: "Made in Mexico" is also "Made in America."

This is why imposing stiff tariffs on Mexican imports would be so counterproductive. Ironically, it would raise the cost of importing goods that American companies such as GE have made across the border. At the same time, only by helping Mexicans earn more can America export more expensive goods to them, creating jobs in software, consulting and other services at home. Let's face it: America's 12 million manufacturing jobs will continue to dwindle, at the hands of either China or Mexico, and definitely because of robots. Making America great is not about preserving an industrial-era workforce, but rather increasing the number of higher-paid software developers, scientists, doctors, engineers and other 21st-century jobs. Scapegoating Mexico isn't a substitute for the kind of real investments in education technology that America really needs.

Both Trump and democratic rival Bernie Sanders need to understand that the 20-year-old NAFTA is not something that can be unwound -- nor should it. In fact, we're evolving into a "North American Union" in which trade, investment, demographics, natural resources and many other kinds of integration are underway.

Not that Trump seems to have anything against Canada, but it's worth pointing out that Canada's importance to the United States will also only grow in the years ahead. Already America's largest trade partner by far, Canada is also a major supplier of oil, gas, timber and other commodities to the United States (with or without the XL pipeline). Remember the Northeast blackout of August 2003? Since then, electricity lines from Quebec are now suppliers to America's grid, with more Canadian hydropower on the way.

With the ongoing drought in much of California and the fast-growing Southwest, it's not hard to imagine that the United States and Canada will need to undertake some massive cross-border hydrological engineering projects to channel abundant Canadian freshwater to the parched southern United States. And as climate change accelerates, Canada is set to become perhaps the world's largest food producer. Canada is also the kind of neighbor you also want to have in times like these.

Geopolitics is about hemispheres, not countries. China is spending $100 billion per year bilaterally and through the Asian Infrastructure Investment Bank to stitch together an Asian bloc that harnesses the resources of 3 billion to 4 billion people. America as a single country is not actually what will compete with these Asian export powerhouses, but rather an integrated North American mega-continent is what will reinforce America's ambition to remain the most competitive superpower in the 21st century.

Link to article