US-Mexico economic ties tested by cross-border tensions

The kidnapping of four American health care tourists in Mexico, which resulted in two of their deaths, has rattled an already shaky political detente across the Rio Grande, setting off tit-for-tat accusations between GOP hawks in Congress and Mexican President Andrés Manuel López Obrador.

The incident has left U.S.-Mexico relations at a quarter-century nadir, with nationalistic rhetoric coming from both sides of the border, even as the two countries work toward economic integration.

Sen. Lindsay Graham (R-S.C.) called this week for Mexican drug cartels to be labeled as foreign terrorist organizations (FTOs), a long-shot proposition, but one that could in theory set the legal framework for the United States to execute military operations in Mexico without the country’s consent.

Other Republican lawmakers have jumped on that bandwagon.

Texas Rep. Dan Crenshaw (R) had already proposed an authorization for use of military force in January, and has proposed a bill that stops just short of slapping the FTO label on cartels.

‘Interventionist, arrogant wimps’

López Obrador lashed out in response for the second day in a row in his daily press conference Friday, without directly naming Graham or Crenshaw, though he has singled out U.S. lawmakers before.

“That is not the path — of threats, of submission, of invasion. Who do those interventionist, arrogant wimps think they are? Mexico is to be respected,” he said.

On Thursday, Graham doubled down in response to López Obrador’s threat that day to cajole 40 million Mexican-Americans to vote against Republicans in 2024.

“To the Mexican government: Let’s work together. But if you do not work with us, we will be forced to protect America by using military force and we have the right — no matter where the threat comes from — to protect Americans,” Graham said on Fox News.

The saber-rattling is reminiscent of bilateral relations throughout much of the 20th century, where mutual distrust reigned in an asymmetric relationship that former U.S. Ambassador to Mexico Jeffrey Davidow dubbed “the bear and the porcupine.”

Still, the cross-border threats are more explicit than at any time in recent memory.

“I want to work with Mexico. I am trying to work with Mexico. But I also want to let them know that if they don’t change their policies, we’re going to take things into our own hands,” Graham said.

“We’re going to start killing terrorists in Mexico who are killing Americans.”

The threat of future escalation

While the use of unilateral military force in south of the border is currently unthinkable, Mexican officials worry that a future Republican administration could go beyond threats.

“What worries me is that they’re normalizing this kind of rhetoric,” a Mexican official told The Hill.

Since the 1990s, the two economies have blended into a symbiotic relationship that’s only been strengthened as U.S. relations with China have soured and as trans-Pacific trade showed its limitations during and after the pandemic.

According to the U.S. Census Bureau, U.S.-Mexico trade in goods during 2022 amounted to nearly $780 billion. While the United States ran a $130 billion deficit during this period, Mexico is both a major exporter and a major market for its northern neighbor.

Comparatively, total trade in goods with Canada in 2022 was $790 billion with an $82 billion deficit, and trade with China totaled $690 billion with a $383 billion deficit.

The massive economic incentives can discourage confrontation on other fronts, said Rep. Vicente González (D-Texas), whose district abuts Matamoros, the city where the four tourists were kidnapped.

“The reason we’ve been looking the other way, we’ve been ignoring all the s— in Mexico, is because business is so damn good,” González said. 

“Business is so damn good that we don’t want to look, but you know, more people have died in cartel violence in Mexico in the last 15 years than we’ve lost in Korea, Vietnam and every war in the Middle East.”

The rising peso

In Mexico, foreign investment and exports remain strong, feeding seemingly conflicting headlines on the country’s state of affairs.

On one hand, news about cartel violence and López Obrador’s efforts to reform the Mexican electoral authority — another source of disagreement with U.S. lawmakers — has driven bilateral tensions.

On the other, the Mexican peso has appreciated nearly 8 percent against the dollar so far this year, making it the best performing currency of a major economy.

The peso’s strength has been attributed to a multitude of factors, including the central bank’s historical independence and López Obrador’s general disdain for government deficit, but global economic shifts are keeping demand for the currency high.

Mexico’s surplus in trading goods with the United States means companies need to buy pesos to pay for those products, while foreign direct investment and remittances — money Mexicans abroad send back to friends and family — also help prop up the currency.

While violence in Mexico is mostly localized to certain states, its spread has changed the way Americans do business with the country, including along the border.

“So it’s not everywhere, but it’s widespread. And I’m trying to tell people that too: ‘Don’t freak out, right? It’s not the whole country.’ It’s in different areas, it’s across from me, but it’s not only across from me. I haven’t rolled across that bridge in 15 years,” said González.

Still, an FTO designation would be overkill, according to Rep. Henry Cuéllar (D-Texas).

“There’s a lot of things already on the books that I think we can go after [the cartels]. I think the kingpin law is one of them. … You’ve seen a lot of prosecutions by the U.S. government, against cartel leaders in the past,” Cuéllar said.

“My fear is that it sounds good to designate them as a terrorist groups, but could that create more refugees from Mexico into the U.S. and cause more of a headache?”

Crenshaw’s proposal avoids the FTO designation to keep from giving Mexican nationals a window to claim asylum in the United States, but it still would authorize a level of U.S.-sanctioned violence not seen across the Rio Grande since the 1916-1917 “punitive expedition” led by Gen. John Pershing.

And both López Obrador’s heightened rhetoric and GOP militarized proposals come at a fraught political time.

“Of course the GOP will piggyback on this because it’s A. both a way of cornering the Biden administration on border security policies on the road to 2024. B. It also helps to position members of the GOP sort of to out-Trump [former President] Trump, see who is stronger, meaner on border security, national security issues,” said Arturo Sarukhan, a former Mexican ambassador to the United States.

Sarukhan added that designating criminal organizations as FTOs would only serve to “stigmatize the relationship.” 

“It’s not going to significantly move the needle, it’s going to create serious — particularly if it’s a unilateral U.S. policy — it’s going to create a backlash. It’s going to contaminate the bilateral relationship at a very, very delicate juncture in time when both countries are going to the polls in 2024.”