Commentary: Like It Or Not, The U.S. Is Hitched To Mexico

Searching through the debris of Mexico's crisis, Washington's trade elites can only wince. The debacle, coming just two weeks after the chummy Latin American trade summit in Miami, was more than just a roller-coaster ride for financial markets. The peso's precipitous plunge against the U.S. dollar sent chills through a Clinton Administration that had held up a politically stable and economically growing Mexico as the poster child of its international trade policy.

Suddenly, with investor confidence in Mexican President Ernesto Zedillo Ponce de Len ebbing, the Clintonites are beginning to fear that their ambitious plan to establish a free-trade zone from Alaska to Argentina could be a pipe dream. The President's much-publicized "win-win" North American Free Trade Agreement, which was supposed to trigger a continental economic boom, is now derided by critics as "lose-lose." Crows AFL-CIO trade expert Mark Anderson: "In my wildest propagandist dreams, I never would have predicted this."

BYE-BYE, SURPLUS. Helping the critics is a stunning setback in U.S.-Mexican trade: Overnight, the 30% devaluation wipes out a U.S. trade surplus with Mexico and creates chronic deficits for the foreseeable future. A merchandise surplus of $2 billion anticipated for 1994 will turn into a $3 billion deficit this year, predicts pro-NAFTA economist Gary C. Hufbauer of the Institute for International Economics. Services will suffer the same fate, as U.S. tourists flock across the border to Tijuana and CancPound n, while San Diego and El Paso lose free-spending Mexican shoppers.

But there can be no turning away from the U.S. embrace of Mexico. The interests of U.S. government and business are at stake as never before. U.S. exports to Mexico are still an important part of American growth hopes. U.S. banks, retailers, manufacturers, investors, and oil companies all see Mexico as a crucial part of their international strategies. And reviving Mexican prosperity is more politically important than ever at home because of smoldering U.S. resentment about influxes of new immigrants in key states such as California and Texas.

So even the worst critics of NAFTA seem to recognize that Americans are now united with Mexico in a kind of holy matrimony. The deeper relationship began with the debt crisis of the early 1980s, but now NAFTA has taken it one step further. Mexico's troubles are American troubles in a way that few could have foreseen a year ago.

That helps explain why Washington is moving so forcefully to support the $18 billion peso-stabilization fund. Big banks such as Citicorp are also part of the movement--because they have to be. Faith in the Americans' own financial system would be damaged if Mexico were allowed to slide into financial chaos. The financial integration has reached the point that senior Administration officials say Clinton will put together yet another stabilization package if this one is depleted.

Yes, there may be a pause in the pace of U.S. direct investment in ambitious new plants, offices, and retail outlets. Wal-Mart Stores Inc., for example, may delay opening some new stores. But few doubt that slowly and methodically, the U.S. business presence in Mexico will continue to expand.

FADING REFRAIN. United Technologies Corp. Chief Executive George David says his company is still looking for small investments of $5 million to $10 million apiece. Other major industrial and technological players such as Northern Telecom Inc. and General Electric Co. want to become more deeply involved in Mexico's telecommunications and transportation infrastructures. "We're going to look for opportunities to expand as much as possible," says Ken Brown, chairman and chief executive of GE Mexico. His company's revenues were $1.4 billion last year.

All of which helps explain why the current wave of Mexico-bashing is likely to fade. The incoming class of Republican freshmen doesn't share the GOP's traditional free-trade allegiances, and there will be much public posturing. But Clinton will find support for his trade policies from leading GOP moderates such as Senator Richard G. Lugar of Indiana, the second-ranking Republican on the Senate Foreign Relations Committee. "The destiny of the U.S. is to be part of a free-trade hemisphere," says Lugar, who still endorses renewal of Presidential "fast track" authority for negotiating new trade deals without congressional meddling.

Lugar is part of a loose coalition of moderate Republicans and conservative Democrats who represent states and economic interests that are deeply committed to Mexico's long-term success. All of which goes to show that America's relationship with Mexico--like a marriage--is for better or worse.

Before it's here, it's on the Bloomberg Terminal.