Saturday, September 23, 2006

On Sept. 7, the Security and Prosperity Partnership of North America (SPP), a government office established in March to increase cooperation between the United States, Canada and Mexico, released a progress report. Among its achievements was creation of an American Competitiveness Council to enhance North America’s posture in the struggle for hotly contested global markets.

Unfortunately, major events are already unfolding that will undermine this belated attempt to respond to ambitious rivals who have been piling up ever-higher trade surpluses at the expense of American-based enterprises.

A flurry of articles over the summer painted the SPP as a step toward a North American Union that would submerge national sovereignty and open the U.S. to mass migration and political corruption. Human Events launched the story from the right, but it spread across the spectrum to the Daily Kos on the left.

One focus of the articles was a planned corridor of highways and railroads from Mexico into the American Midwest dubbed the “NAFTA Highway.” Some of the stories sought to revisit the debate over the North American Free Trade Agreement, but what is really behind this transportation network heralds the collapse of NAFTA and its dream of a stronger continental economy. NAFTA was supposed to combine cheap Mexican labor with U.S. capital and technology to improve competition with Asian rivals. C. Fred Bergsten and Jeffrey Schott, of the Institute for International Economics, testified to Congress in 1997: “We wanted to shift imports from other countries to Mexico — since our imports from Mexico include more U.S. content and because Mexico spends much more of its export earnings on imports from the United States than do, say, the East Asian countries.”

Imports from Mexico grew rapidly in the 1990s on this model, but that is not what drives activity now. Today, the massive wave of imports from Asia is clogging West Coast ports and sending shippers and retailers searching for new routes to bring even more foreign products into the United States. Container ship traffic from China is growing by 15 percent a year. Between 2003 and 2005, annual imports from China rose by $92.2 billion, and from other parts of Asia by $41.0 billion.

The final terminus of the planned transport network is the Kansas City, Mo., SmartPort. Its Web site proclaims, “The idea of receiving containers nonstop from the Far East by way of Mexico may sound unlikely, but… that seemingly far-fetched notion will become a reality.”

The Chinese firm Hutchison Whampoa has partnered with Wal-Mart in a $300 million expansion of Lazaro Cardenas to handle perhaps 2 million containers annually by the end of the decade. The American Chamber of Commerce in Guangdong, China, has held seminars promoting this Mexican port. Punta Colonet, about 150 miles south of Tijuana, is also eyed for expansion to offload millions of additional containers filled with Asian imports. Kansas City Southern railway has bought the Mexican rail links and the State of Texas is negotiating with a Spanish firm to build a corridor of toll roads from the border heading north.

While American-based manufacturers will continue to suffer under the barrage of Chinese goods, Mexican industry will be smashed flat by what should be called a new Silk Road rather than a NAFTA highway. The economic development goals of NAFTA are being abandoned.

More than 600 of the maquiladoras assembly plants along the U.S.-Mexican border have relocated to China, leaving their Mexican workers behind. There is little chance for Mexican wages to rise if at $1.50 an hour they can be undercut by Chinese labor at 50 cents an hour. NAFTA was to be a way to lift Mexicans out of poverty and stem illegal immigration to America. A similar argument was made last year about the Central America Free Trade Agreement (CAFTA). As South Carolina Republican Rep. Bob Inglis said during that floor debate, “I stand here convinced that it is the best strategy available to combine with our neighbors to the south to compete with the Chinese.”

The new transport plans make a mockery of these arguments, as they are aimed purely at helping China improve its competitive advantage over all North and Central American rivals. What is being built is truly a “Highway of Death” for both NAFTA and CAFTA. The resulting regional turmoil will be felt in the United States.

It is well past time to rethink the sophistry of “free trade” with China. Instead of spending billions of private and public funds aiding Chinese traders, a major effort should be launched to rebuild and expand the North American production base, and to stem the massive outflow of capital and technology to Beijing, America’s ambitious geopolitical rival. A key part of that effort would be to restructure NAFTA to create a true trade bloc that would drive Chinese goods off the continent, rather than into its heartland.

William Hawkins is senior fellow for national security studies at the U.S. Business and Industry Council.

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