Mexico

The economic rise of the developing south is one of the biggest trends of the last decade, accelerated by the 2008 global economic downturn. Since 2001 trade between these countries has grown 18 percent a year on average, outpacing global trade growth of 11 percent. Nearly half of all exports worldwide now originate in emerging markets—predominantly Asia. A recent Inter-American Development Bank report lays out how Latin America is faring with these global shifts. Overall the region has not kept pace. Trade flows have lagged GDP growth, up 1.1 percent and 3 percent respectively in 2012. In part this reflects Latin America’s strong links to mature rather than developing economies—the United States and the European Union remain the region’s largest trading partners. Mexico, Latin America’s largest exporter by far, leads this trend, fully integrated with the United States (and to a lesser extent Canada). Central American and Caribbean countries generally follow, sending the majority of their exports north. IDB, “After the Boom: Prospects for Latin America and the Caribbean in South-South Trade,” 2013. In contrast, many South American nations have made the shift, sending two-thirds or more of their exports to other emerging markets. For Brazil, Chile, and Venezuela, China is already their largest export destination, and according to the Economic Commission for Latin America and the Caribbean, the Middle Kingdom will edge out the European Union as the region’s number two trading partner by the end of the decade. Yet this growing dependence has been double-edged more recently, as China’s growth slows. Still, bright spots exist for Latin America.  Exports to their neighbors are robust, accounting for more than half of total South-South trade. Intra-industry trade is an important component, and more likely to involve intermediary and manufactured goods. Economists show that these exchanges are more likely to bring benefits in terms of productivity, competitiveness, and innovation. And there are still advantages to Latin America’s geographic and historical trade flows with the United States: these exports are more diverse and provide more value added than those with China. As Latin American nations diversify their export destinations, the challenge will be to do the same with their products.  While still far from building the robust supply chains that dominate Asia, growing intra-industry trade in the region hints at the possibility that in some industries and sectors an actual “Latin American factory” could emerge.

This is a guest post by Greg Mendoza, an MA student at The Fletcher School, Tufts University. He previously was an intern in the Latin America Studies program at the Council on Foreign Relations. Last year, Mexico passed a historic energy reform to end over seventy years of exclusive state control of the energy sector. Some analysts estimate drastic changes in the sector—with upwards of twenty billion dollars in foreign direct investment a year that could boost GDP 2 percent annually by 2025. On August 11, President Peña Nieto signed into law the secondary legislation that dealt with issues ranging from the distribution of oil rents to the reorganization of the electricity sector. One important but less discussed aspect for the nation’s future will be the Mexican Fund for Stabilization and Development, designed to help the Ministry of Finance mitigate the negative effects of volatile energy prices. Oil and commodity price fluctuations have buffeted Latin American economies for decades. Governments exacerbated the damage by maintaining procyclical fiscal regimes—increasing spending during booms and slashing budgets when prices fell. These policies are dangerous for states such as Mexico given that last year oil revenues accounted for sixty-six billion dollars, or one-third of the government’s annual budget. The new Mexican Fund for Stabilization and Development will manage government energy revenues. Controlled by the Bank of Mexico, the country’s independent central bank, the fund will disburse an estimated sixty-three billion dollars to the federal budget (based on current receipts from Pemex). Assuming additional revenues, some of the monies will be saved while others will be allocated to programs such as the universal pension system and local development projects. A technical committee that consists of the Ministers of Finance and Energy, the Governor of the Central Bank, and four independent parties will recommend to congress the amounts given to each of these programs. This structure contrasts with Mexico’s previous Oil Revenues Stabilization Fund. The previous fund could never save enough revenue to make a difference in downturns because of the balanced budget rule, which annually withdrew money from the old oil fund when there was a budget deficit. Under the new law, the technical committee limits transfers to the federal budget at 4.7 percent of GDP, and bigger outlays for economic emergencies require a two-thirds vote in the Mexican lower house. In creating this new fund, Mexico hopes to replicate the success of other sovereign wealth funds. Chile’s Economic and Social Stabilization Fund is the best known in Latin America, credited with bailing the country out in the wake of the 2008 world financial crisis. With copper representing 20 percent of the country’s GDP, the fund saves surplus copper revenues during booms, and spends the reserves during economic downturns. The central bank manages the fund and is valued at almost $16 billion, a large sum for a country whose GDP was $277 billion in 2013. The government’s adherence to saving copper surpluses proved successful in 2008, when funds were quickly transferred to the federal budget to mitigate the effects of the Great Recession. The success of Mexico’s new stabilization fund will depend on whether the new fiscal rules work. Saving money for a rainy day is not easy. Oil bounty could also push up the currency (the dreaded resource curse) hitting Mexico’s robust manufacturing sector, which represents three-fourths of its exports. However, the new stabilization fund addresses these concerns and removes the old restrictions on its savings, limits monetary transfers to the federal budget, and is managed by the independent central bank to minimize political interference. The new rules should insulate the economy from the negative effects of oil revenue variability and provide resources for future development. The fund’s success will be determined by the upcoming implementation, and although there are still challenges institutionalizing these reforms, the new laws are a positive first step in modernizing Mexico’s energy sector.

This is a guest post by Stephanie Leutert, who is beginning an MA in Global Affairs at Yale University in the fall. She previously was my research associate in the Latin America Studies program at the Council on Foreign Relations. Mexican manufacturing is perhaps best symbolized by the infamous maquiladoras in the border region. Yet, in states from Chihuahua to the Yucatán, Mexican engineers are changing the narrative. Alongside more established auto and medical equipment manufacturing, Mexico is growing its aerospace industry, attracting investment, creating jobs, and changing its economic identity. But many challenges remain if the benefits are to be felt widely. For now, Mexico’s aerospace industry is the world’s fourteenth largest. Some 287 aerospace companies operate in eighteen states, with five major clusters in Baja California (59 companies), Sonora (45 companies), Querétaro (33 companies), Nuevo León (32 companies), and Chihuahua (32 companies). And the sector is growing exponentially. From 2009 to 2012, Mexico’s aerospace industry received more foreign direct investment than any other aerospace sector in the world—boosting its exports to $5.5 billion in 2013. Driving the sector’s explosion is its integral role in the North American aerospace production platform. “The United States is the market, Mexico is the low cost manufacturing, and Canada is the partner for production,” explained Marcelo López Sánchez, the secretary of sustainable development for Querétaro. In the sector’s continental supply chains, “aircraft are designed in Canada, set up in Mexico, and final production takes place in the United States.” This role—along with Mexico’s macroeconomic stability, low wages, few if any tariffs for exports to the United States and Canada, protection of intellectual property rights, and growing number of aerospace engineers—have propelled the sector onto the global map. Mexico’s federal and state governments have also cleared the way—offering companies enticing tax incentives, cutting through bureaucratic red tape, and signing bilateral aviation agreements with forty countries to waive the inspections of pieces and parts before they are packed for export. Still, Mexico’s aerospace industry employs only about 43,000 Mexicans, a tiny portion of the country’s 50 million strong workforce and even small within the advanced manufacturing sector. But the real importance lies in the spillover effects. Every $1 million invested in engineering intensive manufacturing is estimated to create an average of four jobs. And every one high tech manufacturing job supports at least two jobs elsewhere (though some estimates are as high as fifteen jobs)—both directly (in the companies that supply the aerospace industry) and indirectly (in construction, transportation, and other service industries). However, for Mexico to reap the full benefits of its aerospace clusters, the sector will need to continue building out its local companies and employee base. The majority of aerospace companies operating in Mexico are foreign, limiting the economic effects for host regions. This stands in contrast to other advanced manufacturing industries where Mexican companies have a much larger presence. In Querétaro alone, Mexican companies make up almost a third of the state’s automobile manufacturing, and expanding into the burgeoning aerospace industry would appear to be a logical next step. But the transition has been slow. Part of the problem, according to Luis Lizcano, director general of the Mexican Federation of Aerospace Industry (FEMIA), is the different business model. “In the automotive industry, [production] is high volume, low mix, in aerospace it is low volume, high mix.” A company may get an order for 250 parts, many of which are different—and all must be of the highest quality. “It requires a different mindset.” For those companies already shifting mindsets and moving into aerospace, there is also the challenge of becoming certified. Compared to other advanced manufacturing industries, aerospace certifications are stricter and more expensive, and navigating the process can be tough for companies just entering the sector. “You have to be technically savvy to understand the industry and the certifications,” says Lizcano. To provide support, state governments have taken the lead—counseling Mexican companies on how to obtain the appropriate certifications necessary to break into global supply chains. But none of this matters without the human talent necessary for aerospace manufacturing. Mexico graduates an impressive number of engineers, but given the aerospace industry’s recent arrival, most are specialized in other sectors. Some communities are working hard to change this. In 2006, Bombardier arrived in Querétaro after the state agreed to build a National Aeronautics University to train aerospace engineers. Today, the university provides two-thirds of Bombardier’s workforce for its Querétaro plant and sets up specialized training programs when needed. Other universities and technical programs are also popping up across the country, and are increasingly partnering with schools in the United States. The goal for workers, says Lizcano, is to have a “higher knowledge base, higher skills, and then higher value added per job,” making the sector more competitive and hopefully pushing up wages. Today, Mexico’s aerospace industry employees continue to earn low salaries by international standards. An operational worker (the majority of the sector’s employees) earns an average of US$1,000 a month, and a technical job brings in about US$1,500 a month—limiting the upsides for families and communities. Fully addressing any of these challenges will take time, even given the current efforts among industry leaders and policymakers. Yet, the industry is already a powerful symbol of the country’s expanding economic identity. As the domestic suppliers and workforce continue to develop, Mexico’s aerospace sector has the potential to change the country’s economic narrative and ultimately its reality.

Two weeks ago, I was down in Mexico for the launch of the Spanish-language version of my book, Dos Naciones Indivisibles: México, Estados Unidos, y el Camino por Venir. During my time there, I had the pleasure of talking with Leo Zuckermann and Javier Tello on FOROtv’s Es la Hora de Opinar. We had a lively conversation on Mexico and US-Mexico relations. You can watch it here.  

Despite the standstill in Congress on immigration reform, state and local governments have been very active in passing their own immigration legislation. In this article for Foreign Policy, I look at what different states and cities are doing regarding immigration and the effects of their policies. You can read the beginning of the piece below:  With all the mudslinging and acrimony in Washington over unaccompanied minors and unauthorized immigrants, you might have missed it. Immigration reform has already happened -- in fact, hundreds of times. With the federal government incapacitated, states, cities, and municipalities have stepped into the fray. In 2013 alone, forty-five of the fifty state legislatures passed over four hundred laws and resolutions on everything from law enforcement and employment to education and public benefits. Among this flurry were a few in the Arizona SB 1070 style -- bills making life more miserable for undocumented immigrants. These laws ranged from blocking access to health care and schools to criminalizing common activities such as driving cars or buying homes. But the majority are actually designed to find ways to integrate undocumented immigrants -- funding English language and citizenship classes and providing access to medical care and other social services. You can read the rest of the piece here on ForeignPolicy.com.

In 2013, foreign direct investment (FDI) in Latin America reached $185 billion according to the latest ECLAC report, continuing the slight upward trend of the last three years. Brazil maintained its number one position as the largest FDI destination, raking in $64 billion (over one third of all regional FDI). Mexico came in second, with some $38 billion (boosted by the $13 billion purchase of the rest of Modelo by Belgian based Anheuser-Busch InBev, a company run by Brazilians). Mexico’s Pacific Alliance partners—Chile, Colombia, Peru—also had a fruitful year, with a combined $47 billion in investment. And despite its economic woes, Argentina garnered $9 billion. Regionally, more than 38 percent of the total flow went to the service sector—including finance, telecommunications, and electricity. Manufacturing ranked a close second with over a third of the inflows, and the remainder going to natural resource production (26 percent). These flows varied by country. For example, 70 percent of FDI in Mexico went into manufacturing, while in South America, excluding Brazil, most of the flows targeted natural resources. For those hoping FDI will drive employment, productivity, and improve well-being more generally, the “quality” of FDI matters as much as the quantity. Investments in natural resources have fewer economy wide benefits when compared to those in manufacturing, technology, or some services. For instance, a 2012 study by ECLAC estimates that construction, commerce, and certain types of manufacturing create some seven jobs on average for every US$1 million invested, while mining and petroleum FDI generate just one job for every US$2 million invested. On this front, the news is somewhat positive. Within the manufacturing sector, FDI for medium level technology projects grew–comprising roughly 84 percent of total investment (flows into low-tech areas shrunk, while those into high-tech remained relatively flat). ECLAC also measured the accumulated foreign direct investment. Here Latin America fares well vis-à-vis other emerging markets, with its 32 percent of GDP average besting Russia (25 percent), India (12 percent), and China (10 percent). Chile tops this list, with its FDI stock totaling 77 percent of GDP. This deep foreign investment base also means that outward flows of profits are significant. In 2013 they averaged 81 percent of the value of FDI inflows–meaning transnational corporations with operations in the region have gotten back almost as much in profits as they invested. Perhaps one of the most striking trends in Latin America in recent years has been the amount of investment among neighbors. In 2013, Ecuador’s largest outside investments came from Uruguay, while El Salvador’s emanated in Panama. Mexico was among the top four countries investing in Brazil, Costa Rica, Ecuador, Honduras, Nicaragua, and Paraguay. While the majority of Latin America’s FDI still comes from the United States and Europe, of the top twenty mergers or acquisitions in the region, seven of the buyers were from Latin American countries. ECLAC, "Foreign Direct Investment in Latin America and the Caribbean," 2013. This trend reflects the growing influence and power of Latin American countries upon their neighbors’ economies. Historically, analysts have looked to the United States, Europe, and more recently China for needed funds in Latin America, in part due to lackluster domestic savings rates near 18 percent (versus 52 percent in China). But as these trends show, it is increasingly Latin American nations that may shape the direction of jobs and ultimately growth in the region.

With Eric Cantor’s loss earlier this week, most believe immigration reform is dead. Yet with tens of thousands of Mexican and Central American children flooding across the U.S. southern border, a legislative overhaul is even more important. In this piece for Foreign Policy, I look at why these kids are coming and what we need to do about it. You can read the beginning of the piece below: Among the faithful, there has been at least faint hope that after the primary season ends and before midterms begin immigration reform might occur. President Barack Obama even held off on reviewing deportation policies in May to give space for a legislative fix. But now, with Eric Cantor’s loss in his House primary to Tea Party outsider David Brat, that slim chance is pretty much nil. The tragedy is that this setback is occurring precisely at a time when the human cost of our broken immigration system has again made the headlines, this time in the faces of thousands of undocumented children flooding across the southern border. U.S. Customs and Border Protection apprehended over 47,000 unaccompanied youths at the border over the last eight months—mostly from Mexico, Guatemala, El Salvador, and Honduras—overwhelming U.S. border facilities and detention centers. With the UNHCR reporting that the numbers will reach 60,000 this year, this has the makings of a full-blown humanitarian crisis. You can read the rest of the piece here on ForeignPolicy.com.

I recently had the opportunity, along with Vianovo’s James Taylor,  to chat with Mexican Congressman Javier Treviño, one of the country’s energy reform leaders. We focused on what investors and analysts can expect from the secondary legislation currently being hammered out in Mexico’s Congress—touching on the development of Mexico’s new energy model, national content requirements, the role of state and local governments, and environmental and security considerations. You can read the beginning of our talk below: 1.  If you could list the key elements present in the secondary legislation that international companies and investors should know about, what would they be? Why? Mexico’s energy reform is historic, real, and transformational. We are defining an innovative Mexican model for energy viability in the twenty-first century. There are several key elements: a)  Transforming Pemex and CFE (Mexico’s public utility company) into true productive enterprises, not bureaucratic agencies, but efficient and competitive companies. b)  Opening the energy sector to private domestic and international investment, to benefit the whole Mexican economy and the Mexican people by providing certainty for investors with clear rules for the types of contracts considered: production sharing, profit sharing, licenses, and the existing services contracts. c)  Strengthening the regulatory framework of the Mexican government and giving new enforcement responsibilities to the Secretary of Energy, the National Hydrocarbons Commission (CNH), and the Energy Regulatory Commission (CRE) to oversee and manage the energy sector. d)  Ensuring the benefits of the reform for present and future generations of Mexicans by creating the Mexican Petroleum Fund for Stabilization and Development, to be managed by the Central Bank (Banco de México), including a mechanism to channel resources for long-term savings and investments. e)  Safeguarding environmental protection, by creating a new Industrial Safety and Environmental Protection Agency, which will design and implement specific public policies. f)  A firm commitment to transparency, accountability, and the rule of law. These are the most important elements of the reform. It isn’t only about oil, gas, and electricity, but also about developing a Mexican model for industrial competitiveness in the twenty-first century. A model that takes into account the energy revolution we are witnessing in North America and that Mexico will now be able to join. It is about a reindustrialization process that relates to competitiveness and job creation in all of North America and about lowering costs to make Mexico more competitive. Ultimately, the energy reform is about increasing competitiveness and creating more jobs. You can read the rest of the interview here.

Over the last three decades, oil’s importance in the Mexican economy has diminished, with energy products shrinking from over three-quarters of all exports in 1982 to less than 15 percent in 2012. Still energy’s role in Mexico’s politics has not receded, in part due to the federal budget’s dependence on the sector—taxes and royalties comprise roughly a third of total inflows into government coffers. As the Congress negotiates the secondary legislation that will set the ground rules for opening up the energy sector in Mexico, the government will have to address this dependence as well, weaning itself from Pemex’s largesse. Mexico’s tax system is broadly made up of taxes on hydrocarbons, income, corporate profits, goods and services, as well as contributions for social security. According to the National Institute of Statistics and Geography (INEGI), an autonomous government agency, Mexico’s Tributary Administration Service (SAT) collected roughly US$200 billion in federal, state, and local taxes in 2012. Of the federal inflows, some $70 billion (pre gasoline subsidy) came from hydrocarbons, $58 billion from income taxes, and another $50 billion from the value-added tax (VAT). Source: INEGI “El Ingreso y el Gasto Público en México 2013” There are two basic ways that the Mexican Treasury can lower its dependence on oil. The first is to raise other taxes. At roughly 19 percent of GDP (including hydrocarbon revenues), Mexico’s tax burden is the lowest among the OECD’s member countries, where rates average closer to 34 percent. Within Latin America, Mexico is nearer to the regional median of 20 percent of GDP. Source: OECD Statistics The government started this process with a 2013 fiscal reform. The new law removed VAT exemptions along the U.S.-Mexico border (standardizing the rate at 16 percent), raised income taxes for high earners, and introduced a tax on dividends, among other measures. The government predicts that the reform will raise revenues by 2.5 percent of GDP by 2018, though only by 1 percent in 2014 (roughly $12 billion). Another avenue to fiscal solvency is better tax collection. A Global Financial Integrity study calculated that between 2000 and 2009, about $50 billion a year in illicit outflows were not taxed, nearly the amount collected in VAT or income taxes. Some of this $50 billion comes from illegal goods—drugs, contraband, and the like. But some of it stems from businesses avoiding taxes, reflecting one of Mexico’s most significant economic challenges: the immensity of its informal economy. Some 30 million Mexicans (six out of ten workers) are in the informal sector, not paying any taxes or contributing to social security. This tax loss adds up to an estimated 3 to 4 percent of GDP a year (some $35 to $50 billion). As Pemex shifts from a state owned enterprise to a state productive enterprise, the government would be wise to diversify its revenue base. This will require some mix of higher taxes and better tax collection. One is never popular, the other requires stronger institutional capacity; but both will likely be necessary to replace Mexico’s easy energy money.

This past December, Mexico passed a historic energy reform that has the potential to fundamentally transform the country’s oil, gas, and electricity sectors. In this brief that I co-authored with James Taylor, founding partner at Vianovo, we lay out the importance of the soon-to-be-announced secondary legislation, provide an outline of the newly formed regulatory regime, and explore the types of opportunities that the reform will create. Mexico is the world’s 9th largest producer of oil and the third-largest in the Western Hemisphere (behind the United States and Canada and ahead of Venezuela). It has vast untapped shale oil reserves, estimated to be the 5th largest in the world, according to the U.S. Energy Information Administration. As the third largest supplier of crude oil to the United States (after Canada and Saudi Arabia), Mexico accounts for roughly 12 percent of its northern neighbor’s total imports. The lion’s share of Mexico’s crude oil exports (85 percent) head to the United States—all supplied via tanker, as Mexico does not have international oil pipeline connections. While Mexico has immense oil and natural gas supplies, it has been on a decade-long track toward becoming a net energy importer. Oil production has been steadily declining, falling by 1 million barrels per day since 2004. With limited domestic refining capability and strong demand, the country is already a net importer of refined petroleum products, such as lighter grade gasoline and diesel. And in natural gas, Mexico’s growing consumption needs (for power generation and to meet industry demand) outstrip its productive capacity, leaving the country as a net importer of the fuel. Mexico’s main supplier of natural gas is the United States, with imports arriving both as liquefied natural gas (LNG) and via an integrated and growing network of cross-border natural gas pipelines. You can read the rest of the brief here.

President Obama will meet tomorrow with Mexican President Enrique Peña Nieto and Canadian Prime Minister Steven Harper for the North American Leaders’ Summit. The three leaders will take a look back on the last twenty years of regional integration, but even more importantly, they will have an opportunity to set the course for the next two decades. In this piece for Foreign Policy, I explain why working trilaterally for a North American future is more important now than ever before for the United States. On Feb. 19, President Obama heads to Mexico to meet with President Enrique Peña Nieto and Canadian Prime Minister Stephen Harper at the North American Leaders’ Summit. The three leaders will undoubtedly look back at the last twenty years, recognizing the mostly positive changes that the North American Free Trade Agreement (NAFTA) and other cross-border ties have brought to the three nations. But the more important element of the meeting is a question: Will the leaders look forward in a serious way, setting the neighborhood agenda for the next 20 years and grabbing the opportunity to promote a truly North American future? The most fundamental building block of that future is and will continue to be trade. Today, each of these nations is among the others’ largest trading partners, with intra-regional trade reaching more than $1 trillion a year. Some 14 million U.S. jobs depend on its neighbors—5 million more than in pre-NAFTA days. These jobs pay, on average, some 18 percent more than those catering to just U.S. consumers—what economists call the "nontradeable" sectors, according to a Department of Commerce study. This and other international trade have also benefited American households through the wider variety of goods available at lower prices. To be sure, some jobs have left. But studies show that even more have been created, and that these jobs have come precisely from those companies that embrace global production. A study by Harvard Business School and University of Michigan professors, using confidential data collected by the commerce department, estimates that, for every ten jobs that multinationals create abroad, they create on average two new jobs in America. By producing globally—and especially continentally—companies like Ford, Caterpillar, General Electric, and OfficeMax have been able to expand locally. This finding reflects perhaps the biggest commercial shift since the signing of NAFTA: the changing nature of production. Rather than sending each other finished products, the United States, Mexico, and Canada now trade pieces and parts. The back-and-forth among assembly lines, plants, and countries in the making of each car, plane, computer, or flat-screen TV means that for every item imported from Mexico, 40 percent of its value, on average, was actually "made in the USA." (For Canada, it is 25 percent.) That means, of the nearly $277 billion in goods imported from Mexico in 2012, $111 billion was actually made by U.S. workers. In contrast, of the much larger $425 billion imported from China, less than $17 billion was derived from U.S. labor. As dramatic are the changes on the energy front. Here, North America has long been tied together: Canada and Mexico have been top oil suppliers to the United States for many years. The flows are often reciprocated, with Mexico buying U.S. natural gas and the United States and Canada sharing electricity through integrated grids. But the potential of North American energy has transformed in recent years. In the United States, the rise of shale oil and gas has shifted the conversation from one of preoccupations with scarcity to talk of self-sufficiency and even abundance. In Canada, new technologies are unlocking the vast resources of Alberta’s oil sands, and warming temperatures are opening up potential new finds under the Arctic ice. In Mexico, recent constitutional reforms are changing the energy landscape, opening up this sector, after decades of state control, to private investment and expertise. The rising exploration and production accompanying new U.S. energy finds has kicked off an employment boom, with estimates of between one and two million new jobs being created in the next six years. But the surge will also have wider-ranging effects, encouraging further investment in energy-intensive industries like chemicals, fertilizers, cement, glass, and plastics. And, if exploited in an environmentally sustainable way, access to cheap and stable energy in the three nations will undergird the regional supply chains that are already deeply embedded, giving corporations one more reason to choose North America over other locales for their production. Vital to this dynamic future is security. Here, the three nations face threats ranging from organized crime to terrorism, from health and natural disasters to cybersecurity. Since the attacks of Sept. 11, the United States has increasingly come to see its borders as a source of vulnerability and addressed them both unilaterally and bilaterally through policies like "Beyond the Border" with Canada and the "Twenty-First Century Border Initiative" with Mexico, which aimed to improve security by jointly sharing intelligence and creating trusted traveler and other programs to speed up the good and stop the bad crossing each day. These border-centric strategies have improved security, but often at the cost of trade and economic competitiveness. And by working only bilaterally on security threats, the three nations often miss the benefits that could come from a much closer and coordinated regional approach to protecting North America’s peoples. The time is right for re-envisioning North America. Mexico is in the middle of historic changes. Over the last 16 months, the country’s congress has passed as many major reforms across several policy areas, ranging from education to anti-trust, taxes to energy. These changes should make Mexico more open, and the integrated supply chains already in place with its neighbors all the more competitive. Moreover, immigration flows—which fell to net zero with the United States in recent years—have at least the potential to lessen the heated rhetoric that inflames bilateral tensions and to open up space for constructive engagement on economic, energy, and security issues, among others. To the north, meanwhile, Ottawa is open to engaging the United States, and to working to make the most of Canada’s energy boom and resurging potential for manufacturing. It has also expressed an interest in a regional approach to global issues. The costs of not engaging are increasingly high. In a world of regional blocs, deepening U.S. ties with its economic allies—particularly its neighbors—will help maintain national competitiveness. America’s dream of energy self-sufficiency depends too on its neighbors, and, on the security front, given the significant interlacing of companies, workers, families, and communities, outcomes in one place often reverberate regionally. The United States is already a global superpower. But with its neighbors, it could extend its reach even deeper. At this week’s summit, North America’s leaders need to do more than acknowledge their mutual interdependence—they need to set an ambitious agenda to expand it.