AFTER THE COLD WAR:FROM GEOPOLITICS TO

GEOECONOMICS

NAFTA and the Gospel of Free Trade

REQUIRED READING

• Smith, Talons, chs. 7-9

• Course Reader #3, Blecker and Esquivel, “NAFTA, Trade, and Development”

AFTER THE COLD WAR: THE GLOBAL ARENA

1. Collapse of the Soviet Union2. U.S. military primacy: the “unipolar moment”3. Economic multipolarity: Europe, Japan, others?4. Transnationalization and non-state actors5. A “third wave” of democratization?

DIMENSIONS OF UNCERTAINTY

•Distributions of power: the “layer cake” model•Military = unipolar•Economic = tripolar•Interdependence = diffusion

•Absence of “rules of the game”

•Hesitancy in the United States

ON “GLOBALIZATION”

• Factors:

– End of Cold War=reduction of political barriers

– Communication technologies

– Transnational enterprises: production chains and consumer markets

– Movement of people and goods, legal and illegal

• Features:

– Inexorability, inevitability

– Politics the result of economics

– Inclusion vs. exclusion?

– Claim: no ideology

THE 1990s: GEOECONOMICS AND

“INTERMESTIC” ISSUES

• Ideological consensus (or “end of history”?)

• Implausibility of revolution

• Fragmentation of “Third World”

• The rise of “intermestic” issues:– Free trade– Drugs and drug “wars”– Immigration

THE GOSPEL OF FREE TRADE

The Lost Decade (1980s) and Its Legacies

Dynamics of the debt crisis

The Washington Consensus:

•The role of the state•Liberalization of trade•Privatization, the private sector, and foreign investment

North American Free Trade (NAFTA)? Why? Why Then?

Global Scenario:

Economic multipolarity and rivalry (Japan, EU)Geopolitical uncertaintyEmphasis on “geoeconomics”

U.S. Perspectives:

Supplement to FTA with CanadaSupport for neoliberal reforms in MexicoGrowing Mexican-American population within U.S.

Mexican Perspectives:

Exhaustion of alternativesNeed to stimulate growthPerpetuation of Salinista policies

NAFTA: What Is It?

A “free trade” area:

Not a customs union Nor a common market

Characteristics:

• Uneven levels of development• Cultural and political variation• Hub-and-spoke arrangements (with U.S. at center)• Absence of supranational authority (preservation of sovereignty)

Assessing Results: The Problem of Cause-and-Effect

NAFTA in comparison with:

• Initial expectations (and political rhetoric)

• Liberalization (mid-1980s)

• Global and/or U.S. economic conditions

• Long-term economic and social trends

• Short-term shocks (e.g., Mexican peso crisis of 1994-95)

Economic Performance: Expansion of Trade

General effects:

• More efficiency (in production and consumption)• Greater market size (thus higher returns)• Tougher competition

Questions:

1. Who takes part in the trade? (55 % large firms, 40% maquiladoras, > 5% small firms (~ 2.1 million firms)

2. What about trade diversion?

Mexican Exports, 1985-2005(billions USD $$)

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Oil exports Non oil exports

1985 = 27 bn, 1994 = 61 bn, 2205 = 214 bn

Expansion of Trade, 1993-2005(millions USD $$)

288,530375,778

475,803568,736

615,226 626,456

772,369

0100,000200,000300,000400,000500,000600,000700,000800,000900,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mexico-U.S. Mexico-Canada Trilateral trade

U.S. Trade with Mexico and Latin America, 1993-2005 (millions USD $$)

138060.0

170108.6

39917.5

62100.4

85937.6

131337.9109720.5

34455.542472.5

53697.058464.7

67370.078829.1

122873.0

0.0

20000.0

40000.0

60000.0

80000.0

100000.0

120000.0

140000.0

160000.0

180000.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Mexico Latin America

U.S. Imports: Key Trading Partners, 1993-2005 (millions USD $$)

170108.6

25101.5

21730.3

43781.4

34825.8

51032.6

243470.131539.9

17118.1

39917.5

0.0 50000.0 100000.0 150000.0 200000.0 250000.0 300000.0

Mexico

China

South Korea

Taiwan

Great Britain

2005 1993

Foreign Direct Investment in Mexico, 1980-2004

GDP Growth in Mexico

1945-1980 ~ 6.5%

1995 -7.0 % 1996 5.1 1997 6.8 1998 4.9 1999 3.8 2000 6.6 2001 -0.2 2002 0.7 2003 1.5 2004 4.6 2005 2.8 2006 5.0 2007 3.2 2008 1.3 2009 -6.8

Note: Growth does not necessarily reduce poverty, and often increases inequality.

Unforeseen Shocks:

Mexican peso crisis of 1994-95September 11, 2001Drug-related violence, 2008-09

Current Challenges:

Expansion of the development gapInfrastructure (including roads)MigrationEnergySecurity problems

Key Points of Disputation:

•Environmental protection

•Labor rights

•Overall development strategy

•Dependence on United States

•Development gap

•Consolidation of U.S. hegemony

Blecker-Esquivel• “NAFTA has basically failed to fulfill the promise of closing the Mexico-

U.S. development gap…”

• Zero economic convergence (GDP per capita), no reduction in incentives for Mexicans to migrate

• Modest impact on employment (500,000 in both countries)

• Lag 2000-08:

– Emergence of China

– Increased value of peso

• Reasons for lack of convergence:

– Badly implemented reforms

– Reform paralysis

– Lack of a domestic engine

• Future prospects:– U.S.-Mexico trade a two-way street

– Convergence could reduce migration

– Health and elder care

The Public Assertion: Free Trade = Democracy

The Silent Bargain: International Dimensions

•Political stability and social peace

•Access to petroleum

•Leverage vis-à-vis economic rivals

•Compliance on foreign policy

POLITICAL EFFECTS

Political Consequences (1)

Political Consequences (2)

Now What? Hemispheric Integration?

1. Expansion of NAFTA (through new memberships)

2. FTAA negotiating process

3. Bilaterals and minilaterals:

• U.S.-Chile• U.S.-Central America• U.S.-Peru• U.S.-Colombia (?)