Mexico diverges from North America – Washington should worry

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Four decades ago, the presidents of the United States and Canada took a risky gamble. George H.W. Bush and Brian Mulroney gambled that free trade and closer integration could transform Mexico from a corrupt, nationalist, one-party state into a multiparty democracy with strong institutions and an economy more like their own.

The North American Free Trade Agreement was born, and the bet paid off. Mexico became the U.S.’s largest trading partner, and American companies invested more than $200 billion south of the border. Mexico enacted reforms that ensured fair elections, strengthened the judiciary, and created independent regulators.

Ernesto Zedillo, the unassuming technocrat who, as president from 1994 to 2000, charted Mexico’s path to democracy, said the reforms marked “the long-awaited arrival of a truly democratic presidency.”

Now there is a turning point. While they welcome the increased trade and investment that NAFTA and its successor USMCA have, Mexican President Andrés Manuel López Obrador and his chosen successor Claudia Sheinbaum have radically different ideas than their North American compatriots about democracy and the economy.

“There was an aspiration for at least the last 30 years that Mexico would become a modern, Western, open country and society,” said Jorge Castañeda, who served as foreign minister from 2000 to 2003, after the opposition first came to power. “López Obrador and the legacy he is leaving her are moving in the opposite direction.”

Sheinbaum, who will be sworn in next week, believes Mexico went wrong in 1982 when then-President Miguel de la Madrid tamed soaring inflation and excessive borrowing with free-market policies. He opened Mexico to trade, deregulated and privatized, and laid the groundwork for NAFTA.

In an interview with the FT , she dismissed the period from 1982 to López Obrador’s 2018 election as “36 years of appalling impoverishment and inequality.” In fact, Mexico’s economy doubled in size between 1982 and 2018, after adjusting for inflation — though the benefits were unevenly distributed, with the wealthier north benefiting disproportionately.

Sheinbaum’s recipe for “transformation”, like that of her mentor, involves direct democracy (all judges are elected by voters), heavy spending on social services, a state-run economy and a large role for the military, which will continue to run large parts of the economy. Asked whether she believed in institutional checks and balances, she told the FT: “The people must decide”.

Optimists want to believe that Sheinbaum is a modernizing technocrat who will break with her mentor. But she truly believes in his “Fourth Transformation” of Mexico, as she explained last week: “There can be no break if we have built this project together.”

Some of López Obrador and Sheinbaum’s foreign partners have raised eyebrows. Venezuela’s President Nicolás Maduro, wanted by the U.S. on drug trafficking charges, was a guest at a regional summit, while oil donations and payments for visiting Cuban doctors helped prop up Havana’s communist government. Sheinbaum has invited Russian President Vladimir Putin to her inauguration.

How worried is Washington? The Biden administration is relying heavily on Mexico for help to reduce the record numbers of migrants reaching the U.S., and has barely batted an eyelid at sweeping changes south of the border.

The next U.S. president may find it harder to ignore Mexico’s “transformation.” U.S. businesses are angry about the dismantling of Mexico’s independent judiciary and the planned elimination of checks and balances. The country’s drug cartels are controlling ever-larger swaths of territory. Congress is taking note, and so are investors. The peso has fallen 14 percent since the election.

Sheinbaum has made it clear that she intends to continue her mentor’s playbook: reaping the economic benefits of North American trade integration without conforming to the institutional and democratic norms of its neighbors.

Zedillo, the architect of Mexico’s democratic transformation, has sounded the alarm, warning the International Bar Association conference that López Obrador and Sheinbaum’s Fourth Transformation would turn “our democracy into a tyranny.”

Will the US sit idly by? Or will it lobby hard, as it did successfully in Brazil when far-right President Jair Bolsonaro empowered the military, attacked institutions and contemplated a coup? It is not too late to save Mexico’s fragile young democracy — and Washington will likely pay a high price for inaction in the long run.

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