Washington worries as Mexico threatens to follow a new path

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Four decades ago, the presidents of the US and Canada made a risky bet. George HW Bush and Brian Mulroney wagered that free trade and closer integration could transform Mexico from a corrupt, one-party nationalistic state into a multi-party democracy with strong institutions and an economy more like theirs.

The North American Free Trade Agreement was born and the bet paid off. Mexico became the US’s biggest trading partner and American companies invested more than $200bn south of the border. Mexico passed reforms guaranteeing clean elections, strengthening the judiciary and creating independent regulators.

Ernesto Zedillo, the unassuming technocrat who laid out Mexico’s path to democracy as president from 1994-2000, says the reforms marked “the longed-for arrival of a truly democratic presidency”.

There has now been a sea change. While happy with the increased trade and investment from Nafta and its successor USMCA, Mexico’s President Andrés Manuel López Obrador and his chosen successor Claudia Sheinbaum have radically different ideas from their fellow North Americans about democracy and the economy.

“There was this aspiration, at least, for Mexico to become a modern, western, open country and society for the last 30 years,” said Jorge Castañeda, who served as foreign minister from 2000-03, after the opposition won power for the first time. “López Obrador and the legacy he’s leaving her move 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 rocketing inflation and excessive borrowing with free-market policies. He opened Mexico to trade, deregulated and privatised, laying the foundations for Nafta.

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

Sheinbaum’s recipe for “transformation”, like that of her mentor, includes direct democracy (all judges will be elected by voters), heavy welfare spending, a state-driven economy and a big role for the military, who will continue to run swaths of the economy. Asked if she believes in institutional checks and balances, she told the FT: “The people should decide”.

Optimists want to believe that Sheinbaum is a modernising technocrat who will break with her mentor. But she is a true believer in his “Fourth Transformation” of Mexico, as she explained last week: “There cannot be a rupture if we have been building this project together”.

Some of López Obrador and Sheinbaum’s foreign partners have raised eyebrows. Venezuela’s president Nicolás Maduro — wanted by the US for alleged drug trafficking — was a guest at a regional summit, while donations of oil and payments for visiting Cuban doctors helped keep Havana’s communist government afloat. Sheinbaum has invited Russia’s President Vladimir Putin to her inauguration.

How worried is Washington? Heavily dependent upon Mexico for help to reduce the record-breaking numbers of migrants reaching the US, the Biden administration has barely batted an eyelid at the radical changes south of the border.

The next US president may find it harder to ignore Mexico’s “transformation”. American businesses are upset about the dismantling of Mexico’s independent judiciary and the planned elimination of checks and balances. The country’s drug cartels control ever-greater chunks of territory. US Congress is taking notice and so are investors. The peso has tumbled 14 per cent since the election.

Sheinbaum has made clear she wants to continue her mentor’s policy of having his cake and eating it: enjoying the economic benefits of North American trade integration without signing up to the institutional and democratic norms of her neighbours. 

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

Will the US stand idly by? Or will it lobby hard, as it did successfully in Brazil when far-right President Jair Bolsonaro was empowering the military, attacking institutions and musing about a coup? It is not too late to save Mexico’s fragile young democracy — and Washington is likely to pay a heavy long-term price for inaction.

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