The Nuclear Option

Luis Rubio

The key to having an atomic bomb is to never use it:  it is the threat of its use that deters those possessing such a power. The same occurs with the negotiations between governments in ambits such as investment and commerce.  Although the risk is evidently less because what is at stake is not the country’s physical destruction, President López Obrador appears not to perceive any risk of confrontation in the affair of   the dispute in matters of energy with the U.S. and Canada.

AMLO was able to destroy an airport and saddle the country with a 16 billion U.S. dollars bill without anything happening. The devaluation that many forecast never came and the government devoted itself to hiding the direct costs as well as it could.  What cannot be hidden are the indirect costs, those which can only be appreciated in terms of the investments that didn’t materialize, the jobs that were not created, the economic growth that was not achieved.  These costs might be ethereal for the members of the governmental apparatus but are tangible for all Mexicans for whom any possibility of prospering appears to be increasingly remote or totally unattainable.

The lesson that the president seems to have taken away from the case of the Texcoco Airport was that his actions did not have negative consequences. Viewed in retrospect, it is evident that, first, the consequences were enormous, as illustrated by the paralysis that characterizes the country today. On the other hand, the airport was the exception, given that it concerned a project of the prior administration, a project robustly criticized by the then-presidential candidate López Obrador. That is, the president could claim legitimacy regarding his decision, independently of the cost.

The case of the dispute in electricity issues is completely different from that of the airport.   In his (nearly) fifth year in government, the president cannot suppose that Mexico’s trading partners and the investors involved, actual and potential, would accept the notion that this is a piece of legislation corresponding to the previous administration. The agreement currently in force, the United States -Mexico-Canada Free Trade Agreement (USMCA), was ratified during the current presidential term and is the law. In the face of this, the Mexican government has two options: one is to seek an arrangement that allows all of the parties to save face, as took place with the gas pipelines in 2019, another unnecessary dispute. The other would entail the nuclear option: get out of the agreement.

Some have spoken of a “Mexit,” arguing that the price of breaking with the European Union for the U.K. has not been high. That story, like that of President López Obrador’s six-year presidential term, has yet to be written, but the example of Brexit is more relevant than one could imagine. To begin with, the British case was the product of a long and wide-reaching debate, followed by an election in which the majority manifested itself. No less important, England is a consolidated democracy, with institutions long in lineage that guarantee stability. And yet, despite this, the costs of Brexit start to pile up in even the most insignificant things: the tail-lights of trucks, the labels on certain foods, the new “border” in the sea that separates Northern Ireland from the rest of the U.K. Each of these “small” costs adds up, diminishing the supposed benefits of Brexit.

For Mexico, NAFTA was conceived as a means to confer certainty on the economic agents.   Breaking with it would imply eliminating that source of reliability, which would be equivalent to thrusting Mexico into a maelstrom of self-destruction. There’s no way to sweeten the obvious: the NAFTA, and now USMCA, was the response of the Mexican government to the abuse represented by the expropriation of the banks in 1982. A source was sought of external credibility to sustain a base of confidence that did not exist within Mexico, and the United States was willing to provide it.   Unfortunately, nothing was done during the ensuing decades to engender similar wellsprings of internal certainty, leaving Mexico in exceedingly precarious straits. In that epoch, at the time of the banks’ expropriation, the interconnections between Mexico and the world were tiny, but the price of that heroic gesture of the then-President López Portillo was monumental, including several years of near hyperinflation. Today, walking away from USMCA, with the multiplicity of interconnections existing with the U.S. would be suicide for the country. Let alone for this president: the disgrace that López Portillo endured after his government would be nothing compared with what would befall AMLO.

Another way of discerning the conundrum in which the Mexican government has (gratuitously) positioned itself is that the NAFTA was drawn up due to the possibility of a president arriving on the scene bent on destroying everything. The NAFTA, and the national institutions that would be built to complement it, was equal to what Tony Blair did in England, whose first act was to promote the independence of the Bank of England with the same objective as the NAFTA: to confer certainty on the population and on the economic agents.

Instead of unleashing something tantamount to an atomic bomb, the president could take advantage of this dispute to replace China within USMCA to consolidate the pathway to growth and development, sources much more certain for a promising country and for the president himself.