President Trump and Mexican leaders have been disagreeing since the first moments of Trump’s presidential campaign, when Trump accused Mexico of using the United States as a dumping ground for criminals; he went on to campaign on building a wall, imposing a tariff, and revising NAFTA.
But beneath the heated rhetoric is a complex and largely beneficial relationship. Mexico is the United States’ third-largest trading partner, with $531 billion in two-way trade in 2015. More than 35 million Americans have Mexican roots. While U.S. companies’ investments in Mexico get more attention, Mexican companies employ more than 123,000 people in the U.S.
On February 21, Yale SOM’s Chief Executive Leadership Institute presented the Yale Mexico CEO Forum, convening a group of leading Mexican and American businesspeople and political leaders in Mexico City. Professor Jeffrey Sonnenfeld led a frank discussion of the state of U.S.-Mexico relations, the future of NAFTA, and the protectionist impulses on both sides of the border. He talked to Yale Insights about what he learned from the conversation.
Q: You gathered a group of some of the most important leaders in Mexico to discuss the U.S.-Mexico relationship on February 21, just a few weeks into the Trump Administration. What were you hoping to learn from this conversation?
This was a really exciting opportunity for us. We’ve had just over 90 CEO Summits now. We’ve done them in Shanghai, Mumbai, Delhi, and Beijing. We never know what’s going to happen until they walk in the door.
This was our first in Mexico City. So we just didn’t know what to expect. The timing was so right on this. It was providential. One hundred percent of the people we invited accepted very quickly and showed up. And the enormity of who they were—of the 70 people, 45 of them are among the 50 to 55 leading business titans of Mexico.
We brought Lorenzo Caliendo and Rodrigo Canales from our own faculty and we had a great U.S. delegation—for example, Arne Sorenson, the CEO of Marriott Hotels Worldwide, the world’s largest hospitality chain. Also, Ambassador Roberta Jacobson, the U.S. Ambassador to Mexico. She’s an Obama appointee but a career civil servant who is one of the very few ambassadors held over into the new administration. She is quite authoritative on NAFTA and trade issues and a specialist on Latin America in general. We had representatives from the top leadership of Cisco and IBM and PepsiCo and Coca-Cola and UPS and Vonage. We even had some people who had the perspectives of top campaign officials—John McCain’s old campaign chief Steve Schmidt was there and Hillary Clinton’s former campaign leader Mark Penn. It was a terrific cross-section.
We were hoping to have a candid discussion. So rather than giving speeches, soapbox tirades, we had an active, spirited discussion on the most critical issues right from the start.
You know, this is a relationship that’s just below a $400 billion trade relationship. It’s grown enormously from what had been about an $80 billion dollar relationship just before NAFTA. And Mexico is our third-largest trading partner. This is a relationship that is critical for national security and commerce. In fact, despite the political rhetoric, there was a surprising amount of optimism that this thing can be worked through.
For example, on NAFTA, there are issues that are different in the technology front that have emerged since NAFTA was passed. There’s been a telecommunications revolution, so that leads to intellectual property issues. There has been a revolution on the energy front. There is confusion on trying to trace products’ origin—it seems that of the trade from Mexico to the U.S., more than 40% is actually from the U.S. going through Mexico and then back to the US. And trying to sort through what all this means wasn’t really well developed in the original NAFTA. So at a minimum there needs to be some pretty significant fine tuning.
So this was an extraordinarily successful event. It was perhaps four hours in length. But the time passed so quickly. As I said, we proverbially hit the ground running. We opened up with a conversation with the U.S. ambassador. And then we moved to the Mexican perspective, with some very prominent business leaders from Mexico. And then we turned back to say, how do we make sense of the U.S. rhetoric? What does that mean in the U.S. to a U.S. population and then to a Mexican population? How do they hear that language? And then we went to the U.S. business leaders to say, “And how have you dealt with uncertainty like this elsewhere?”
And then we presented our Legend in Leadership Award, and we couldn’t have been luckier and more honored to have Daniel Servitje accept as the CEO of Grupo Bimbo. It was the perfect demonstration of optimism. He symbolically and tangibly represents what’s possible here. This is a business that started with four trucks and 13 people. And now they’ve got about 140,000 employees in close to 40 countries and 10,000 products, and 70% of the business is in the U.S.
Q: You asked the group a series of snap survey questions. When you asked how successful NAFTA has been for Mexico and the U.S., the answer was overwhelmingly positive. What’s your interpretation of that? Were there any disagreements underlying that answer?
You’re exactly right. And then when we did a split by a Mexican audience versus a U.S. audience it was uniformly still positive.
But there was agreement that it’s not done. We had a top economic official who was the lead negotiator for NAFTA, Jaime Serra, who happens to also be a Yale alum. And I thought he would be defensive. In fact he was not defensive at all. He was a champion of what is the next stage that has to be addressed here. But he pointed out that if NAFTA were to dissolve and we fall backwards into the World Trade Organization to resolve conflict, which would be the fallback, that that would lead to a lot issues.
I will say that there’s concern about job loss in manufacturing. There was a very prominent CEO in the room from Mexico who said that a lot of the tensions could be resolved if we realized that in fact most of the U.S. job loss is based on technological displacement and not a drain of jobs from the U.S. to Mexico.
There is also concern that within the Mexican population, just as we have seen a little bit of a protectionist if not isolationist move with Brexit in the UK and in other parts of Europe and Australia. Where does Mexico come out on this? There’s an election I believe in July, and to our surprise the overwhelming belief was that we’ll see a change in political party, which would be a dramatic shift in culture, values, and politics if that were to happen. The verbiage around political change is not explicitly anti-U.S. or isolationist but it’s close to it. The view is we need to invest more in Mexico for Mexico rather than investing in Mexico for trade.
So people feeling left out of NAFTA as beneficiaries in the U.S. and people feeling left out of NAFTA as beneficiaries in Mexico have some degree of common ground. If you look at the employment data from the U.S., the gap hasn’t closed with Mexico. We’ve seen a slight downturn in relative cost of U.S. wages. In Mexico it turns out that the wage rates have been pretty flat. There was an expectation that we’d see a lift in quality of living in Mexico. We haven’t seen that happen. And people in the U.S. who have been NAFTA critics and people in Mexico who are NAFTA critics have common agreement on that.
Q: One survey question where the response was a little bit less unanimous was the question, do you expect a Mexican-U.S. trade war? A little less than one-third of the people in the room said yes. What do you think underlies that?
The view on there being a trade war is that as much as Mexican sentiment has turned against the U.S., with the the deterioration of the official language between the countries and the relationships between both presidents, a trade war would dramatically hurt Mexico more than it would hurt the U.S. Mexico is less likely to want to just say, we’re going to take our ball and go home. It wouldn’t serve either country to start to go down that path of a trade war.
But there was one-third who thought that we’re heading in that direction.
There also is a bit of an irony right now that the one-third that is worried about this is enough to spread so much anxiety in Mexico that we see the peso plunging. And as that happens it of course is making Mexican products even cheaper coming to the U.S., which is not fixing the problem for either party right now. So there is concern that if we start to destabilize the peso in a big way we might have to see some mechanisms to help the Mexican peso created akin to when Robert Rubin was Secretary of the Treasury in the Clinton years.
Q: Were any of the survey responses a big surprise to you?
One was the belief by 70% that we’re going to have a change in political party. That was a really big one. Everyone from the U.S. was shocked.
The president of Mexico is considerably less popular than the U.S. president is. If we believe our polls, this is about as unpopular a U.S. president as we’ve had in recent U.S. history, and yet he has four times the popularity of Mexico’s president.
You know, there was zero anti-American spirit that we could feel with this crowd. And there was zero anti-Mexican spirit. So some of this might be self-selection by the people who come to this event but it’s a cross-section of the largest business enterprises of both countries. And what has caught a lot in the business communities of both countries by surprise is the tone of some of the rhetoric, because nobody knows of any anger between business partners in either country. This has been a very successful partnership that just needs to be addressed for some modernization and fine-tuning. So people are confused about where the tone has come from.
In the border towns—Brownsville, El Paso and others—most of their commerce is coming from the free-trade relationships between the U.S. and Mexico, and they really don’t want to see a wall go up and hamper that. Mexico right now is maybe almost second to none or certainly up there with reciprocal free trade relationships that are a paragon for openness for around the world.
Q: Were there any issues either in the conversation or in the survey results where you saw a difference between the Mexican perspective and the perspective of the American delegation?
I think that in talking with everybody on the U.S. delegation before they came down there, they expected a more tentative, cautious embrace by the Mexicans, because they’re a little embarrassed and a little worried about how we’re handling things on the U.S. side. And they were surprised at the warmth—that it was so easy to talk. That tonality, I think, caught the U.S. delegation by surprise. Nobody was going down there armed for battle but they felt they were going to do a lot more listening. They didn’t realize that they’re so likeminded on the issues.
One interesting point that came up is the question of Canada, which is part of NAFTA as well. And the U.S. is not pointing the same finger at Canada on NAFTA discussions. The Mexicans are wondering why that is. Is this based on confusion or are there more problems from Mexico than we understand? Or is there an ethnic issue that’s going on there that we are vilifying the U.S.-Mexico relationship more?
The language of immigration has seemed to have been overblown in that in fact there’s a considerable decline of actual Mexican immigration into the US. However, the permeability of the border means that there are people from other parts of Latin America coming through Mexico. So there’s a sense that the right kind of relationship with Mexico, where Mexico cooperates on border protection, is the best wall that the U.S. has against uncontrolled immigration from Latin America. So rather than see Mexico as our enemy on this, Mexico can create a much lower-cost, effective wall if Mexican border authorities and U.S. border authorities work in cooperation.
Q: Do you think new relationships came out of this event that could bear fruit in one way or another?
Yes, already Yale is in contact with some people about how we continue this dialogue, whether it’s on trade, commerce, business issues, or cultural issues. We have a lot of new friends.
Just as recently as this morning I’ve been in discussion with how we can work between the Yale School of Management and the Yale Jackson Institute on Global Affairs in continuing in a more formal way some bridge building. And a great thing about Yale is that it’s so seamless, so borderless, that we can have the collective strength of Yale work together with some of these new friends in Mexico to make it worth the time for the Mexicans to come. And we’ll have some at our future CEO Summits and some other opportunities.