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How A Weakened Mexican Economy Could Threaten U.S. Security

President Trump has taken an aggressive stance towards Mexico, both during his campaign and in his early days in office. He has threatened to dismantle NAFTA, to build a border wall and to slap hefty tariffs on Mexican imports, all moves that could hobble Mexico’s economy.

While the Trump administration may argue that these policies are more about “Making America Great Again” than hurting Mexico, there is reason for concern that they may also hurt us. One risk is that the policies themselves could damage the American economy, for example, through higher consumer prices and reduced trade.

But there’s a deeper risk: What happens in Mexico tends to spill over into the U.S. And the problems may not just be economic. According to a prominent area of research in international relations and international political economy, a weakened Mexican economy could also pose security threats to the U.S.

Among the most robust empirical findings in international relations is that poor economic performance can lead to political instability. One of the most cited papers on the subject is a 1996 study by Alberto Alesina and Roberto Perotti in which they found that economic problems, including increased inequality, fuel public discontent and social unrest. This kind of unrest increases the likelihood of even more extreme political instability, including protests, coups and revolutions, according to Alesina and Perotti.

This dynamic has played out in country after country. Economic pressures were part of the drivers of the Arab Spring protests in Egypt and across the region. The current economic recession in Brazil and a century of economic turmoil in Argentina have both been linked to political instability in those countries. Or, to take an example of the relationship working in the reverse: The Chinese government’s primary tool for survival — social stability — depends almost entirely upon its ability to maintain economic growth. We’ve seen it here at home, too: The Great Recession that began in 2008 preceded, in quick succession, the tea party movement and Occupy Wall Street, forces that are in some ways still at play today.

As many of these examples make clear, the effect goes the other way, too: According to Alesina and Perotti, a weakened economy — especially when it exacerbates economic inequality — leads to political instability, but political instability also hurts the economy. It inserts uncertainty into the environment, which leads to less investment. A recent paper by Ari Aisen and Francisco José Veiga finds that political instability can also reduce productivity and human capital development; both governments and families become less likely to prioritize education or training. This cycle means political instability, once it emerges, is hard to shake: A bad economy is politically destabilizing, which worsens the economy, which is further destabilizing. Syria is an example of this perpetual cycle at its worst: Early protests were met with violence, which turned into an intractable conflict, which has all but obliterated the country’s economy, which makes political recovery even harder.

Applying this to Mexico, if Trump’s policies go through, even partially, we could be looking at some significant political and economic consequences for the country. One of the biggest political challenges in Mexico is corruption, which tends to get worse under economic pressure.1 Officials and citizens become more desperate, and there is weakened state capacity to combat it. Drug trafficking and violent crime, also huge problems in Mexico, are also likely to increase under worse economic conditions — again, as people become more desperate.2

The most destabilizing path is less ripe for a TV series, but more concerning. Mexico’s fledgling middle class is likely to be squeezed by Trump’s policies through price increases and unemployment.3 This discontent could lead to protests, or the election of a populist leader, who will promise aggressive anti-American policies. (Sound familiar?). Economic downturns can also heighten conflict between social groups — of which Mexico has many — pitting previously peacefully co-existing groups against each other. And while Mexico’s democracy has recently showed some signs of stability, it’s still on many policy watch lists, especially for crime and corruption, both of which, again, are likely to be the first to worsen under economic pressure.

Maybe, though, as Trump argues, the U.S. can no longer afford to worry about other countries’ well-being — the U.S. has plenty of its own concerns, after all. Fair enough, but Mexico’s woes are unlikely to stop at the Rio Grande: Instability can spill over borders.

There’s a wholy body of research showing this, but the paper that makes this point most clearly is a 1997 piece by Ades and Chua. They demonstrated that political instability in one country hurts its entire region by disrupting trade, requiring all countries to spend more on defense, and — in the longer term — reducing the regional amount spent on education and other forms of human capital accumulation.

Their empirical results over an analysis of 118 countries over a 25-year period are in the chart below. The correlation may not look strong from an economics or finance perspective, but it actually is quite strong from a political science perspective, where our patterns are harder to measure and more subject to noise.

ades_chua

The current conflict in Syria provides a more contemporary and dramatic example. Terrorism, weapons trading and refugees now affect other countries in the region (and even countries outside the region, as northern European countries have seen the effects of both refugees and terrorism, too).

In Mexico’s case, even mild destabilization there could increase the risk of instability in the U.S. More discontent in Mexico as a result of a plummeting economy will mean more angry, armed people close to or attempting to cross U.S. borders. Weakened investment in human capital in Mexico means either more people seeking education in the U.S. or more unskilled workers crossing into the U.S. seeking a job.

Of course, an even more straightforward economic argument makes this case, too: A weakened Mexican economy on its own, regardless of whether there is political instability, will increase immigration pressure from Mexico to the U.S. For example, in the late 1990s Mexico’s economic flattening corresponded with an immigration spike to the U.S. Since then, immigration has gone back down. Rates are even holding steady, and more Mexicans are repatriating, as their economy grows. Policies that reduce Mexico’s ability to export to the U.S. (which accounts for approximately 25 percent of its GDP) could cause an even more significant scenario than the 1990s and early 2000s.

jones-rooy-immigration

More broadly, a struggling Mexico will also be less capable of managing problems such as pollution and disease, which can cross borders far more easily than people. Another H1N1 outbreak in a weak Mexico could put many Americans at risk. A weakened economy is thought to be part of the reason Brazil didn’t mobilize as quickly as it otherwise might have in the early stages of the Zika outbreak.

Finally — and this is speculative — suppose Trump’s policies are enacted to their full capacity. This could cause Mexico’s economy and political environment to deteriorate all the way to status of a failing state. Failing states are thought by both scholars and policymakers to be potential environments for terrorism (technically they increase the likelihood of terrorism, though are not necessary or sufficient).

It may be tempting to think of these problems as far off — Trump’s policies haven’t even been put forth apart from an executive order. But, Mexico’s economy is already showing signs of downturn. The peso is at its lowest level ever and has undergone its biggest drop since 1994. Protests are already breaking out (specifically against Trump). The recent attack on a U.S. consular agent in Mexico also suggests disturbing destabilizing trends that are already affecting the security of Americans.

The Trump administration hasn’t actually done much yet, so it’s possible its eventual policies prove less damaging to Mexico than Trump’s rhetoric and early executive orders would suggest. But both social science and history suggest policies that hurt Mexico are likely to be politically and economically damaging for the U.S., as well.

Footnotes

  1. And then it further weakens the economy.

  2. As with corruption and political instability (noticing a theme?), these activities, in turn, further harm the economy.

  3. A familiar story in Europe, where in Spain, for example, unemployment has been harming the middle class, deepening the country’s recession.

Andrea Jones-Rooy is FiveThirtyEight’s quantitative researcher.

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