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 Union 2.U.S. military primacy: the “unipolar moment” 3.Economic multipolarity: Europe, Japan, others? 4.Transnationalization and non-state actors 5.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 uncertainty Emphasis on “geoeconomics” U.S. Perspectives: Supplement to FTA with Canada Support for neoliberal reforms in Mexico Growing Mexican-American population within U.S. Mexican Perspectives: Exhaustion of alternatives Need to stimulate growth Perpetuation 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 )

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, (billions USD $$) 1985 = 27 bn, 1994 = 61 bn, 2205 = 214 bn

Expansion of Trade, (millions USD $$)

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

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

Foreign Direct Investment in Mexico,

GDP Growth in Mexico ~ 6.5% % Note: Growth does not necessarily reduce poverty, and often increases inequality.

Unforeseen Shocks: Mexican peso crisis of September 11, 2001 Drug-related violence, Current Challenges: Expansion of the development gap Infrastructure (including roads) Migration Energy Security 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 : –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 (?)