The intermodal shipping container—really, little more than a simple metal box—helped transform the world economy, stimulating international trade on a scale no one could have imagined and opening the way to what we now refer to as globalization.

It all sprang from the mind of a North Carolina truck driver named Malcom McLean—a man who had no experience in the maritime industry but proceeded to turn it upside down.

McLean, born in the tiny cotton center of Maxton in 1913, was a compulsive entrepreneur, a man who was always thinking about business. As a child, he sold eggs from the side of the road. Graduating high school in 1931, in the midst of the Great Depression, he stocked shelves in a grocery store and then managed a gas station. He bought a used truck and opened McLean Trucking in 1934, serving as the sole driver while still selling gasoline. Armed with boundless ambition, he quickly built McLean Trucking into one of the nation’s largest trucking companies. McLean Trucking hauled textiles, cigarettes, and other goods up and down the East Coast. The Interstate Commerce Commission, a powerful federal agency, closely regulated trucking in that era, requiring that rates be based on the cost of providing service. Malcom McLean was known for innovative ideas that lowered his company’s costs, such as crenellating the sides of trailers to reduce wind resistance and improve fuel efficiency, so that regulators would allow his company to reduce rates and take market share from its competitors.

By the early 1950s, U.S. auto sales were booming and highways were becoming heavily congested. The Interstate Highway system was still years in the future. McLean, concerned that traffic jams were delaying his drivers and raising his company’s costs, conceived of waterfront terminals at which trucks would drive up ramps and deposit their trailers aboard ships. He envisioned the vessels moving between North Carolina, New York, and Rhode Island, circumventing the heavy traffic and innumerable stop lights on highways that also served as main streets up and down the East Coast.

Pres. Dwight D. Eisenhower, left, leans over for a word with 7-year-old Malcom McLean, Jr., as the lad touches the 1959 American Legion Merchant Marine Achievement Award during its presentation at the White House, July 29, 1959. Young Malcom’s father accepted the award on behalf of the Pan American Steamship Corp., which he headed. In the group at right are, from left: Rep. Frank Boykin (D-Ala.), Mrs. McLean, Malcom McLean, Sr., and Nancy McLean, 13. Photo courtesy of Associated Press.

The industry McLean proposed to enter was more than a little antiquated. A typical oceangoing ship in the 1950s carried around 200,000 separate crates, bags, barrels, and bales. They would arrive at the dock in hundreds of separate shipments. Each item had to be removed from a truck or rail car and moved into a warehouse. When it was time to load the vessel, the individual pieces of cargo were moved out of the warehouse, placed on the dock, and assembled onto pallets that were lifted by a winch into the ship’s hold. There, dockworkers removed each item from the pallet and stowed it.

Unloading at the end of the voyage meant reversing this labor-intensive process. In consequence, moving goods across the ocean often cost 15 or even 20 percent of their value, a price so steep that many goods were not worth trading internationally. Putting truck trailers aboard ships, in theory, would cut out many of those laborious steps—and, in turn, slash costs. But the idea also had an obvious disadvantage: Trailers would take up precious and expensive shipboard space, undercutting potential savings.

McLean pondered the problem and proposed detaching the trailer bodies from their chassis and wheels and putting only the bodies—that is, metal containers—aboard the ships. This would introduce some complications, such as the need for cranes to lift the containers off truck chassis, transfer them to departing ships, and then reverse the operation when a vessel arrived at its destination. On the other hand, containers, unlike truck trailers, could be stacked, allowing each ship to carry far more cargo. Since the vessel was easily the most expensive part of the operation, the more containers that could go aboard each vessel, the less it would cost to carry each one.

The obstacles to McLean’s concept were daunting. Suitable containers, cranes, and ships did not exist; McLean hired engineers and naval architects and set them loose to solve the problems. Federal regulations barred trucking companies from owning ships, so in 1955 McLean sold his highly profitable truck line and then purchased a marginally profitable ship line he could use to test out his ideas. The potential demand for container shipping was unknown, but McLean bet everything on the venture he christened Sea-Land Service. Asked later whether he had considered ways to shelter his trucking wealth from the risks of an unproven business, McLean was unequivocal. “You’ve got to be totally committed,” he said.

Many in the shipping industry regarded containerization as a concept with little potential; McLean was, after all, an outsider unfamiliar with the industry’s storied traditions. For his part, McLean thought the U.S. maritime industry was obsessed with its ships rather than its potential customers. He aggressively built his business along the Atlantic and Gulf of Mexico coasts, on routes to Puerto Rico, and through the Panama Canal to California. He bought a ship line serving Alaska in early 1964, just before one of the most powerful earthquakes ever recorded created enormous demand to ship building materials by sea.

In the late 1950s, other ship lines cautiously tried to follow. Their efforts ran headlong into union opposition. Discharging and reloading traditional ships could require armies of workers, and the dockworkers’ unions knew that a shift to container freight would eliminate thousands of jobs on the docks. Only after repeated strikes on both Atlantic and Pacific coasts did port employers and longshore unions reach agreements in the early 1960s about payments to dockworkers displaced by the new technology.

The biggest barrier to the growth of container shipping, though, was diversity. Each company that followed Sea-Land ordered containers that suited its particular business, and each had a different design for the corner fittings by which cranes lifted containers. If a factory packed a shipment into one ship line’s boxes, the goods might have to wait for space on one of that carrier’s vessels and could only be delivered to a port which the line served.

At the behest of the U.S. Navy, which was concerned it might have to supply troops overseas with a fleet of incompatible ships carrying incompatible containers, domestic transportation companies began discussing how to standardize the container in 1958. The International Organization for Standardization soon picked up the cause, seeking to develop international standards.

McLean, treated as an outsider by the leaders of the shipping industry, was not involved in these talks, but after a decade of fruitless bargaining, negotiators turned to him for a solution. He agreed to surrender Sea-Land’s patents so that every container in every country could use the same corner fittings. That, along with agreement on a standard 40-foot length, assured that any container could fit on any ship and be handled by a crane in every port.

A truck parked near a stack of containers at the Port Newark Container Terminal in Newark, N.J., the nation’s second-busiest port, on Oct. 30 2015. Photo by Julio Cortez/Associated Press.

Standardization cleared the way for container shipping to become an international business. In 1967, McLean won a Defense Department contract to use containerships to supply U.S. troops in Vietnam, quickly disproving doubters who had insisted that container shipping across the Pacific would not be viable. The contract covered round-trip costs, and the lack of military cargo coming back from Vietnam to the United States left Sea-Land free to serve other customers. McLean found them in Japan. Starting in 1968, containership service made it possible for Japanese manufacturers like Matsushita and Pioneer to export televisions and stereos in massive quantities, and the burgeoning U.S. trade deficit with Japan soon became a sensitive diplomatic issue.

Tobacco company R.J. Reynolds bought Sea-Land in 1969, but nine years later McLean reentered the shipping industry by acquiring United States Lines, a large but weak competitor. As always, competition was on his mind; he ordered a dozen containerships that were larger and more fuel-efficient than any afloat, expecting they would enable United States Lines to have lower costs per container than other carriers. This time, though, McLean’s intuitive management style worked against him. Oil prices plunged, leaving United States Lines with the wrong ships for the times. In 1986, the company filed for bankruptcy. Its ships were sold off, and thousands of workers lost their jobs.

McLean was not ready to retire. Five years after the failure of U.S. Lines, at the age of 77, he founded yet another shipping company. Yet he remained out of public view, ashamed of his role in a failure that cost thousands of people their jobs. He shunned journalists and avoided public appearances. As a result, his legacy was not fully appreciated.

By the time of his death in 2001, the industry McLean had founded with a single vessel carrying 58 containers had reshaped the global economy. The local industries that had been the norm in 1956 were long gone; thousands of ships were moving millions of containers around the world each day; the equivalent of nearly 10 million truck-size containers arrived at U.S. ports in 2016. Long-time port cities such as New York and San Francisco had been reborn after years of struggle to replace the jobs and industries lost to the rise of container shipping. Consumers had unprecedented choice among a nearly endless array of products from all parts of the world, but the manufacturing workers who produced those goods strained to cope with more intense global competition. McLean’s innovation, intended just to make his trucking company a bit more efficient, ended up changing the world in ways that no one had imagined.

The post The North Carolina Trucker Who Brought the World to America in a Box appeared first on Zócalo Public Square.

Which is the world you want to live in? One where low-skilled, disillusioned factory workers call for protectionist barriers? Or one where entrepreneurs—using their ingenuity, state of the art technology, and the open market access that American trade negotiators have secured over the past eight decades—sell to customers across the planet, and grow their businesses, hire new people, and realize their full potential?

If you choose the latter world, that’s great. But we will need a new roadmap to navigate it.

The image of globalization, imprinted on many minds, is of American factories fleeing to Mexico or China. But here’s what globalization really is: the voluntary, mutually consenting exchange of goods and services between a buyer in one country and a seller in another country.

More important, here is what globalization is becoming: cross-border sales of goods and services among small businesses—like Travis’s motorbike gear venture—that are selling online, and foreign buyers who are finding them there. Why would we want to shut down such globalization?

E-commerce is breaking what seemed to be an “iron law” of international economics: that exporting was possible only for large companies. Today, while fewer than 5 percent of U.S. companies export, 97 percent of U.S. eBay sellers do. In a new survey of more than 3,000 developing country companies, my firm Nextrade Group finds that half of small online sellers export (while only 20 percent of small offline sellers do), and that more than 60 percent of online sellers export to two or more markets (as opposed to offline sellers, who tend to export to only one market).

Workers manufacture car dash mats at a maquiladora belonging to the TECMA group in Ciudad Juarez, Mexico, Dec. 27, 2013. Photo by Ivan Pierre Aguirre/Associated Press.

Companies today are born global because they are born digital. Which makes this a historic time. We are at the verge of creating a global equivalent of a medieval town square where small sellers and buyers come together to transact. It is a market where anyone can sell to anyone, anywhere, anytime.

While e-commerce enables developing countries to leapfrog to the 21st century’s technology-powered world economy, countries like the United States are particularly well-placed to benefit. We already have the connectivity, logistics, online services from payments to finance to cutting-edge online services, intellectual property, and people with wide-spread digital skills, which developing economies lack.

But we are not optimizing this opportunity. If we were, we would be celebrating free trade and open markets as enablers of our small businesses and online entrepreneurs, not bashing them as enemies of our factory workers whose time has passed. McKinsey Global Institute—which uses dozens of indicators to create an index of digital assets, usages, and workers—finds that the United States is using only 18 percent of its full digital potential; Europe is at just 12 percent. In a survey I recently conducted, U.S. middle market companies graded themselves C- on digital readiness. And more than 50 percent of developing country small businesses rate as poor or very poor in a number of areas in their economies needed for e-commerce to work, such as digital regulations, e-commerce logistics, access to online finance, and their own capacity for cross-border e-commerce.

Policymakers who aspire to empower small businesses to thrive in the global online marketplace need to think outside the box. To name five ways how:

• Microloans for micro businesses. Export credit agencies have traditionally provided trade credit insurance and guaranteed exporters’ working capital loans issued by banks. E-commerce presents a new challenge: Micro and small online sellers often need much smaller and faster working capital loans than banks are able to issue. At the same time, FinTech and online lending companies are on a tear, literally making up for lack of bank lending for small business. Online lenders offer a huge opportunity for export credit agencies like Export-Import Bank to guarantee diversified portfolios of microloans for export-driven online sellers, thus lowering their cost of capital.

• Export promotion for online sellers. Getting online is one thing; successfully exporting online is another matter. Cross-border e-commerce requires keen know-how about export promotion that smaller countries and even government agencies (like the export-promoting Commerce Department) don’t have—such as how to create an international multi-channel shopper strategy or build savvy online advertisement strategies for different markets.

So who knows how to promote e-commerce exports? Global e-commerce platforms do, and they have a keen interest in cultivating new e-commerce users. One innovative model for e-commerce capacity-building is a social impact bond, whereby private foundations, social impact investors, and commerce platforms make the initial investment in promoting exports and get compensated at a premium by the government and development agencies if the project meets certain pre-established metrics that governments value, such as the number of e-commerce-related jobs created, or the amount of new exports. Social impact bonds have been used to cure malaria and save rhinos. So why not to promote e-commerce?

• Customs procedures for small business. Customs regimes in many countries are still tailored to the needs of traditional traders and large companies, rather than to small businesses with limited compliance capabilities. Study after study show that complex customs requirements are a top concern for small exporters and importers in the U.S. and worldwide. The silver bullet for getting rid of these barriers and fueling small business trade is raising de minimis levels—the value of shipment below which goods enter duty- and tax-free. High de minimis creates free trade for small business. In a major service to small foreign businesses selling to U.S. consumers, and to U.S. consumers and companies buying from abroad, the United States raised its de minimis to a very respectable $800 per shipment in 2016. However, de minimis is in many countries laughably low, such as $15 in Canada and $150 in the European Union).

One solution is to launch negotiations on de minimis among a “coalition of the willing.” In such an agreement, each member government might commit to ratcheting up the de minimis level over a period of five to seven years to, say, $1,000, in exchange for a similar commitment from the other members. In other words, each member government would give a little market access at the lower rungs of trade in order to gain a lot more market access in return, just as in a tariff reduction schedule in a trade agreement.

• Digital regulations. My new survey shows that even small online merchants often struggle with digital regulations when seeking to export. For example, in the United States, small financial services companies report suffering from stringent consumer data privacy and protection rules in foreign markets, and from uncertain legal liability for internet intermediaries for user content on their sites. In a survey of Latin American companies, I found that one-third of online sellers viewed uncertain legal liability rules as “very significant” obstacles, while one-quarter were negatively impacted by foreign data localization and data privacy rules.

This is an area where the United States has gold standard rules, and needs to drive trading partners to adopt measures that are interoperable with ours. The Trans-Pacific Partnership was just that vehicle, and its killer, the Trump Administration, has to come up with a new and better one. A pilot could be run with the United Kingdom, whose officials have stressed digital trade as a path to competitiveness.

• Trade adjustment. The giant question mark in tomorrow’s economy is adaptability of labor—whether workers like Nicole and Jennifer could be retrained to take advantage of the seemingly limitless possibilities opened by the global online marketplace.

The answer to this question is not at all clear. Existing tools—such as the Trade Adjustment Assistance that helped retrain more than 230,000 workers impacted by trade over the past decade—will not be enough. The policy question should rather be how to equip tomorrow’s workers to thrive in the global digital economy, one where the pace of change is very fast and competition is ubiquitous. One place to look is at Singapore’s model of active retraining of workers. Another solution: create public-private partnerships between the government and the resented “tech elite” companies such as Facebook to deploy corporate PR and social responsibility dollars to fuel the retooling and rehiring of digital-era workers, in exchange for lower payroll taxes.

Globalization as we’ve known it is coming to a close. It’s time to stop chasing its ghosts—and to start crafting creative policies to empower workers and businesses so that they can leverage the 21st century tools for growth: e-commerce and open markets.

The post How the Internet and E-Commerce Are Hacking Protectionism appeared first on Zócalo Public Square.

Economics has since gone well beyond Ricardo’s analysis. But it remains instructive when it comes to agricultural products. And that brings me to strawberries.

Everyone loves strawberries. They are sweet, they go well on ice cream and sponge cake, and, when covered in chocolate, they are a perennial favorite on Valentine’s Day. There is even a website called strawberries-for-strawberry-lovers.com. The red fruit, a commercial hybrid of the genus frageria, is primarily produced for U.S. markets in two states, California and Florida.

In my part of the country, the Southern California coast, the strawberry fields seem to stretch forever, running inland from the ocean onto the Oxnard Plain. As an economist, I look at the fields and think, “There is Ricardo’s comparative advantage.” Southern California has a mild climate, moist sea breezes, and fertile soil: perfect for strawberry production.

The climate that makes Ventura County, California ideal strawberry territory does not end at the Mexican border (and that won’t change even with a big beautiful wall). On the Baja California Coast near San Quintín, you also find strawberries. With the expansion of cultivation in Baja, Guanajuato, and Michoacán, states, Mexican production and Mexican exports have been increasing in recent years. One reason is the climate allows for Mexican produce, like its Californian counterpart, to mature through the winter.

The consequence of being blessed with good soil and weather for strawberries is that both countries are major exporters of the crop. According to the California Strawberry Export Report, farmers in the Golden State exported about $400 million of fresh and frozen strawberries in 2016. Mexico exported approximately the same amount as California.

Here’s where things get interesting. Mexican exports tend to be to the United States; the United States exports to Canada and other countries. Why does the United States both export and import strawberries? One reason is the different harvesting season in Mexico, and the perishability of fresh berries.

But there’s another defining quality of strawberries: they are hard to harvest. Any hiker who has come across the wild version knows you have to stoop down and remove each fruit one by one. Machines, now used to pick some other crops, would damage the delicate berry and fail to separate ripe from budding fruits. So it is up to people, typically immigrants, to pick strawberries.

According to the Los Angeles Times, a good strawberry picker in Southern California can earn $150 per day during the harvest season. That translates to $18.75 per hour, well above California’s current $10 per hour minimum wage. According to the California Legislative Analyst’s Office, between 25 and 30 percent of all non-strawberry pickers in the same region earn less than $12.50 per hour. So why are these less well-paid folks not clamoring for jobs in the strawberry fields?

They have good reasons. First, strawberry picking is seasonal labor and must be pieced together with other fieldwork, sometimes involving travel to nearby counties. Second, and more important, it is back-breaking work. So the higher wages earned by today’s strawberry pickers are not nearly high enough to attract other low-income earners.

Down in Baja, strawberry harvest workers—no surprise—make much less than they do in Southern California. Even after a successful labor action last year, strawberry pickers’ wages are a little less than 200 pesos, or about $11 USD, per day.

So if labor is cheaper in Mexico, why doesn’t more of the strawberry business move south across the border? Soil and climate quality in California are a factor. And the labor price differential isn’t yet so much as to force the move south. Strawberry farms here can still find people to work in the fields. But there is an issue: The people willing to pick strawberries in Ventura County for $18.75 per hour are not Americans. They are Mexicans willing to brave the hazards of slipping across the border and living in the United States undocumented.

But the United States is changing. And so the delicate balance that allows both Southern Californian and Mexican strawberry operations to prosper is under pressure. The issue? The Trump Administration has vowed to deport undocumented residents. And where more effectively to deploy the limited resources of the U.S. Immigration and Customs Enforcement agency (ICE) than where there is a concentration of the undocumented: in the strawberry fields?

Whatever one thinks of Trump’s change in policy, it’s inarguable that it will impact both California and the U.S. economy.

The immediate impact of deportations will be a shortage of labor. This is what was experienced in Georgia when an employer verification law went into effect in 2012. According to separate analyses by Forbes and NPR, farmers left up to 30 percent of peaches and blueberries unpicked in the orchards; farmers also engaged in a failed attempt to enlist prison labor to replace what was estimated to be up to 11,000 fewer agricultural workers. So, California and the United States will have fewer strawberries picked and the berries in the market will command higher prices.

But this is just the initial impact. In the longer run, farmers will either pay pickers more, perhaps much more, or they will plant something else, specifically crops like wheat and corn that can be harvested by machines, And these mean even fewer strawberries and even higher prices.

But that is not the end of the story. The same people who have been picking strawberries up and down the California Coast will still be picking our strawberries. They just will be doing it south of the border.

Let’s summarize the costs and benefits. The shift of the strawberry business further south should be a real boon to Mexican agriculture, food processing, and trucking. For the agricultural sector here in the United States, profits will be lower as land ideally suited for strawberries will be used to grow feed corn. There also will be less demand for goods and services in the U.S. communities now serving the undocumented, and the juicy red fruit will take more of our personal budgets at the checkout stand.

Finally, there is the unintended consequence of a larger trade deficit. President Trump campaigned on closing the deficit with Mexico. The deportation policy moves in the other direction as more profits from the strawberry trade accrue to Mexican land barons rather than California farmers.

So by itself, it is a policy of “choose your poison.” You can engage in mass deportations with consequent lower income for American farmers and their Mexican farm workers, and increase the trade deficit. Or you can forego mass deportations, thereby increasing the income of American farmers and their Mexican farm workers, and keep the trade deficit with Mexico no greater than it is today. But you can’t do both.

If you’re willing to think beyond deportations, you’ll find other options. One option would be to normalize the status of undocumented farm workers, perhaps via a new version of the bracero program of 1942 to 1964 that permitted U.S. farmers to recruit temporary agricultural help from Mexico. If lessons from that program’s history were kept in mind, a new guest-worker regime could correct the flaws of the previous program. It also would have the side benefits of reducing illegal border crossings—U.S. farms would not be providing jobs to newly arrived undocumented immigrants—and this would allow undocumented immigrants already here to come out of the shadows.

Or there might be something akin to the 1981 Voluntary Export Restraint (VER) program between the United States and Japan that established a quota on Japanese exports of cars to the United States. A VER for strawberries from Mexico would take care of the trade deficit consequence of deportations, through limits on Mexican strawberry imports. But these limits on imports of Mexican strawberries would exacerbate the shortage of strawberries in our supermarkets and would make St. Valentine’s Day even more expensive.

And this is just strawberries. In 2015 Mexico exported almost $22 billion of agricultural produce to the United States. Strawberries are just the tip of the iceberg.

The post If You Want Strawberry Fields Forever, You Need Migrant Labor appeared first on Zócalo Public Square.

The short answer is yes. The harder, unanswered question is: How, exactly?

A body of research including our own papers shows overwhelming evidence that, over the last 20 years or so, trade integration with low-wage manufacturing countries like China has had dramatic effects on the manufacturing landscape in rich countries like the United States and Germany.

It also appears this growing trade exposure is to blame, at least in part, for growing political polarization and increasing support for parties that advocate for populist and protectionist agendas. In our own work, we documented that in Germany during the last three decades, growing import competition from Eastern Europe and China has increased voting for extreme far-right parties, while export access to the same countries appears to have reduced it.

But that leaves a question. For all the research showing that trade shocks that have impacted regional manufacturing employment also had regional effects on political behavior, it is not yet clear what mechanism causes this link.

This represents a larger challenge for economic research. While applied economic research has made huge advances in estimating causal effects of variables of interest on outcomes (for example, the causal effects of import competition on either labor market outcomes or voting), causal mechanisms—the causal links among the different outcomes—are often still a “black box.”

Mexican farmers protesting the removal of import tariffs on U.S. and Canada agricultural goods—as agreed to under the North American Free Trade Agreement (NAFTA)—gather around a tractor set on fire by demonstrators during a protest in Mexico City, Jan. 31, 2008. Photo by Eduardo Verdugo/Associated Press.

One fundamental problem: We have far more potential outcomes that we would like to explain than we have natural experiments or variables that cause the outcomes. As a result, research often generates a large number of stand-alone causal effects on many outcomes with relatively little to say about possible causal links between these. To illustrate, the same types of regional trade shocks have been used to estimate the effect of import competition on manufacturing employment, social transfers, wages, legislators, voting, crime, marriage markets, and patenting. But we have not gotten a clear view of possible causal mechanisms, e.g. whether trade’s effect on one outcome might be explained by its effect on another.

In some contexts, our lack of a fuller explanation is not a huge problem. For example, import competition may increase crime and reduce patenting, but the additional crimes are probably not being committed by laid-off inventors, and crime is not preventing researchers from inventing. In other words, there is probably no causal mechanism linking these two outcomes.

But in other contexts, as with studying trade’s effect on labor markets and on voting, the lack of causal links between these two outcomes is a problem. If import competition has negative labor market consequences and makes voters turn to extreme or populist parties, then it is likely that there is a causal mechanism linking these two outcomes and it is important for policy-makers to know to what extent the populist backlash against globalization is explained by trade’s effect on labor markets.

The search for causal mechanisms is called causal mediation analysis. Existing methods falling under this umbrella allow for the identification of causal effects only under restrictive assumptions. The most important restriction is that the explanatory variable is assumed to vary exogenously—in plain English, this means that you are effectively assuming the conditions of a randomized control trial. A second important restriction is that existing frameworks do not allow the explanatory variable to have any unobserved effects that also affect the observed mechanism.

What does that mean? As an example, suppose we had a dataset of college seniors and in it we could observe, first, whether students attended a job interview training workshop; second, students’ dress code at a subsequent job fair; and, third, whether they secured a job offer. Suppose we wanted to ask to what extent the workshop helped with getting a job because it advised students to dress more professionally. To answer this question, existing causal mediation frameworks would have to assume that workshop attendance was totally random and additionally assume away any unobserved effect of the workshop—such as a more serious attitude by student job-seekers—that might influence students’ dress code and also directly affect their chances of securing a job through better interview skills.

Under those assumptions we could estimate what percentage of the training’s effect on securing a job was explained by dressing more professionally—but this estimate may be totally wrong because the statistical assumptions are.

For example, students most likely attend job interview training workshops deliberately and not randomly. The most common solution to this problem is to find some other source of exogenous variation that partly drives the variation one is really interested in. For example, perhaps the student union accidentally advertised the workshop in some dormitories and not others. This exogenous/accidental variation can serve as an instrumental variable for workshop participation. A large portion of all applied economics research in non-experimental data—including the entire agenda on regional trade shocks—relies on such instrumental variables.

We developed a method that allows us to statistically estimate causal mechanisms in data where a shock (e.g. trade exposure) is not random but where we have an instrumental variable for it. Importantly, our method allows for trade to have unobserved effects (perhaps anxiety about globalization) that in turn influence both labor market outcomes and voting.

As with any statistical framework, we do need to make some assumptions that will not always be appealing. Fortunately, in our research question—trade exposure’s effects on labor markets and voting—these statistical assumptions are very reasonable.

So we applied this method—identifying the assumption on causal relations and estimating instrumental variables—and reached a surprising finding. We found that 170 percent of the total effect of trade exposure on populist voting is explained by labor markets.

This is an important finding in the current policy debate. First, it implies that the negative labor market consequences of import competition from low-wage manufacturing countries have been even more consequential at the ballot booth than one might have thought. Second, it implies that trade integration can be a force for political moderation if we can cushion its negative labor market effects.

Why would trade exposure’s other effects on voting be politically moderating? We are not sure yet. But a plausible hypothesis is that with increasingly fractionalized global supply chains, trading increasingly means working in international teams to bring all the different intermediate products and production steps together into final products.

The post Are Trade Shocks to Blame for Our Extremist Politics? appeared first on Zócalo Public Square.

My favorite map looks different. It puts China, not the Atlantic, at the center of the world.

That reflects reality. In 2014, China became the largest economy on the planet, if you calculate Gross Domestic Product (GDP) in purchasing-power parities: in other words, by measuring the production of final goods and services with a common system of international prices. China’s new role as global superpower was celebrated with little fanfare. But in my opinion it’s the source of many of the global economy’s recent shifts and shocks. My favorite way to explain the current situation is that we’re witnessing a collective silent scream on behalf of the West in response to the loss of its worldwide dominion.

If you want to understand why, just look at my map. With China in the center, Europe is moved to the periphery. The relevant oceans become the Pacific and the Indian, from which China’s growth radiates out. China’s contribution to world growth increased from 3 percent in 1970 to 31 percent in 2015. That growth is rolling across South Asia and East Africa. It’s also noteworthy that the Pacific countries in Latin America are doing better than the Atlantic countries there.

The transition may feel especially jarring because, since World War II, we have been living through a period in human history that is extraordinary in its absence of violent global conflict. That relative peace has allowed much of the world to concentrate on growth, technology, innovation, prosperity, and energy.

This period has also given space for economies around the world, and especially those in Asia, to catch up with Western countries. Just look at how Korea, Singapore, Japan, and other Asian nations have achieved a rapid, unprecedented catch-up with the United States in terms of GDP per capita.

China illustrates the extraordinary scale of the catch-up, as well as how much progress there has been. Back in the 1950s, China had less than 5 percent of the per capita income of the United States. Today that number has increased to 25 percent. That lags well behind Korea and Japan, which are both at 80 percent, but the scale and speed of China’s ascent is big enough to make us rethink the geography of the world. As China leverages its size going forward, it will become more and more a source of global growth.

Visitors walk past a mannequin set up to show how individuals attempt to get past customs, smuggling counterfeit products in violation of intellectual property rights law during an exhibition in Beijing, April 17, 2006. Photo by Ng Han Guan/Associated Press.

So much change, of course, is unsettling. And when things are unsettled, international trade often gets jostled, because trade is such a delicate thing. Trade requires both a complicated mix of public sector and private sector activities. And trade is politically perilous because trade comes with unavoidable imbalances; it leaves the whole richer off, but there are winners and losers, and it doesn’t lift all boats at the same time. Some of the biggest, most obvious losers are manufacturing workers who are undercut by lower-wage competitors. And if you are working in heavy manufacturing and you’re not computer literate, you may be unemployable until you die. And if you’re such a person and you live in a country without a strong safety net, you may have little to protect you.

The Great Recession, and the anti-trade backlash that has followed, are a painful reminder of trade’s fragility. And of this hard fact: While we have global trade, we don’t really have global governance. That means governments can’t easily respond to this anti-trade, protectionist wave, at least quickly.

The lack of political response to unsettling change conspires to make groups of people become desperate or hopeless, to lose faith, and to lash out. It’s very easy for smart, populist politicians to pick up on this, and gain votes and power by blaming trade or immigration, or by appealing to that ultimate trump card, national security.

The response we are seeing in many places is the re-institution of controls on trade and global exchange, despite the costs. Such controls aren’t new. The biggest came after the Sept. 11, 2001 attacks, with tight new screening measures in airports, and the time and money that this wastes.

What is the best response to this backlash and these controls? For me, that question reminds me of a saying we have in Spanish (I’m originally from Madrid) that translates as: “You kill the dog, no more rabies.” You want to find ways to get rid of the rabies—or, to unpack the metaphor, the disease of unsettling change under globalization—without killing the dog. One approach is to defend free trade directly, since we economists understand that trade is not a zero-sum game; rather, it’s a positive game, with winners who could compensate the losers.

Still, as an economist trained in free trade and the research on it, I’ve begun to rethink whether we need a more robust response that would mean profound changes for Americans.

For one thing, we might have to become much more serious about providing a social safety net. Being from Europe, I’m struck by how many of my American students at UCLA have this instinctive aversion to anything that comes from the state, even badly needed safety-net programs. It seems to me there’s an imbalance in this country—so much private wealth, and not enough safety net. (I see a similar imbalance in L.A. traffic: You have all these private cars, especially fancy cars, but not enough public roads, so no one can go fast enough to get the full benefit of their great cars.)

This moment requires some hard questions and rethinking. How well does free trade really fit with the other things we want in modern societies? I was just re-reading work on globalization from an economist colleague, Dani Rodrik, at Harvard. And he says you cannot have all three of the following things simultaneously: democracy, national sovereignty, and free trade. For example, you cannot have international trade without some international rules, and those rules have to be enforced by somebody with international power. So if you want a globally integrated world, you have to give up some sovereignty.

Or you have to go the Chinese way and forget about democracy. You have trade and national sovereignty, but capital controls and top-down management. The theory here, extended to Western liberal democracies, is that you don’t give the electorate a say in economic policy because they’ll support Le Pen or Brexit or Trump.

I’m also not sure I’ve fully taken into account the risks of globalization and trade. Look at the recession of 2008; the risks are pretty high that something like this will happen again. A more economically integrated world would transmit any shocks that happen anywhere on the planet, and that could produce havoc.

It’s clear that putting up walls, trade barriers, and restrictions will not solve a more fundamental problem here in the United States: that the country has too little savings relative to investment, and that this gap needs to be financed from abroad, and this requires a current account deficit. Perhaps this idea is not easy to understand, but it is an accounting and an economic truth.

I also find myself thinking of the Nobel Laureate Paul Samuelson, and the famous challenge he was issued by the mathematician Stanislaw Ulam to “name me one proposition in all of the social sciences which is both true and non-trivial.” Samuelson eventually answered by citing the concept of comparative advantage, the idea that gains from trade follow from allowing economies to specialize. If one country’s economy is better at making computers than coffee, it makes sense for it to invest more in computers and export them, to be able to afford to purchase coffee from some other country.

Samuelson was right, but the problem is that too many people, including many in power, don’t understand the concept. And they don’t understand that even if the United States tried to fix its trade imbalance with China, there would be a backlash, retaliation, and the demise of thousands of companies and jobs.

What we need is to adjust to the world as it is, not to the old maps on the wall, with the Atlantic Ocean at the center. We must recognize the value of trade, and do more for the losers. And we must reckon with the reality of China’s ascendancy and the increasing role that machines will play in our lives.

The post In the New Global Trade Map, China Commands the Center appeared first on Zócalo Public Square.

I understand that when things are going badly it is our human instinct to find the culprit among the “others,” which often means foreigners (excluding the countries from which our personal ancestors immigrated). Per President Trump, the Chinese and Mexicans are the wolves currently devouring our jobs. Let’s breathe deeply and think hard about this issue.

I think we have a good reason to be afraid. There really are aliens taking our jobs. These aliens carry out their assigned tasks with alarming accuracy, they work long hours without complaint for very low wages, they don’t join unions, and they don’t fall in love, which can be very disruptive at the workplace.

You know who might soon take your job, don’t you? It’s the robots. It’s the microprocessors. It’s WALL-E and R2-D2. That’s something to worry about. If your children and grandchildren can only carry out mundane repetitive tasks, they will be in a world of hurt, since they will be in direct competition for jobs with those efficient, reliable robots.

Those robots will do not just the physical tasks but also the intellectual tasks that require only artificial intelligence. Traditional lecture-and-exam-style education creates artificial intelligence; simply put, it merely programs the students to respond the way their instructors think is wise. With the surge of computerized artificial intelligence all around us, we are making traditional education obsolete. Be afraid, university lecturers.

Yes, trade is a factor in jobs evaporating—especially the surge in imports from China—but more as symptom than disease. It’s not barriers to our exports to China that are the problem. It’s our failing educational system—which is not producing enough people ready for a world economy ever more reliant on artificial intelligence—and our pathetically low national savings rate, which requires us to rely on the savings of countries with high savings rates, like China. These problems of education and savings are homegrown, and can’t be blamed on the Chinese and the Mexicans.

Before we scapegoat anyone or get scared about trade, we need to understand it. So let’s start by contrasting balanced trade, with imports and exports equal, and then unbalanced trade, with imports well in excess of exports (as is currently the case in the United States).

If the U.S. had balanced trade, the right question would be, “Are China and Mexico partners of the U.S. or competitors?” Competitors produce the same goods, but partners specialize and do not produce the same products. If we were partners, China would produce the T-shirts and jeans and consumer electronics, while we would produce Boeing aircraft but no T-shirts or jeans or consumer electronics. If we were partners, China would stock the shelves at Walmart with low priced goods, while we would produce none of the same goods in the U.S. That kind of partnership is a win for all Americans who would get to buy Chinese goods at low prices without any downward pressure on wages from Chinese competition. If we were partners, the U.S. should work to maintain that partnership by increasing its economic distinctiveness by elevating the educational attainment of our workforce. Think of it as a global educational race with the leaders enjoying a partnership relationship with the followers, but with the great mass of runners behind competing fiercely against each other. Look behind us. Can you see them all catching up?

On the other hand, if we were to find ourselves back in the pack, and Chinese products were still produced in the U.S., then China and the U.S. would be competitors, and wages of U.S. low-skilled workers would be set in Beijing, not Los Angeles. If we were competitors, not partners, we could put up barriers to imports which would reduce the competitive pressure on wages of our low-skilled manufacturing workers. Of course, that would shrink both imports and exports, thus forgoing some of the benefits of specialization according to comparative advantage.  

That might be wise public policy if the benefits to our middle class exceed the lost gains-from-trade. But we should insist on some evidence for that view, especially given the ongoing force of automation on our middle class. And even then, barriers to imports from China and Mexico would be treating the symptom, not the real cause of lower wages—our failing educational system.

Of course, the Trump administration is not thinking about that education system, or about balanced trade. It is obsessed with our trade deficit, and using it to fuel an anti-trade backlash. But Trump doesn’t understand where that deficit comes from.

The trade deficit is a consequence of our low savings rate, not impediments to our exports. When the investment opportunities in the United States exceed the flow of U.S. savings, we are forced to borrow from foreigners to fund some of our investments. That borrowing creates a demand for U.S. dollars, an elevated value of the dollar, suppressed exports, and increased imports.

The right public policy to reduce our external imbalance is to encourage savings, for example through a matching by Uncle Sam of your contributions to your retirement accounts, or by getting the federal deficit under control. It isn’t good policy to go to our Chinese lenders and insist on higher interest rates!

Workforce development and greater national savings—that’s what we need. With those problems solved, there is no reason to worry about wolves devouring our jobs.

The post The “Aliens” Taking Our Jobs Are Not the Illegal Kind appeared first on Zócalo Public Square.

Or, as moderator Steven Greenhouse, a former labor reporter for The New York Times put it to a panel that included an economist, an entrepreneur, a labor law scholar, and a business development leader, “Why does globalization get such a bad rap?”

Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast, pointed out that the data measuring the effect of globalization “are actually really convoluted,” and that it’s difficult to separate the effect of globalization from advances in mechanization, changing tastes and the overall shift to the information age. We’re seeing much more inequality in terms of income and employment, he acknowledged, but much of that inequality is due to a range of factors, many of which go beyond globalization, such as the replacement of workers by robots.

Nonetheless, said Katherine Stone, an expert in labor law at UCLA School of Law, no matter how you measure it, it’s clear that in globalization, “there are winners and losers, and the losers haven’t been adequately compensated or supported.” That could change, she said, with a shift in social policies and economic programs “that might make them winners as well.”

For entrepreneur Kati Suominen, the solution can be found in the work of companies like her own Nextrade Group, which she founded to help governments and corporations optimize public policy and lending, to support trade and digitization. She argued that the digital economy, which enables anyone to open a virtual shop on eBay, for example, is the path to creating new and sustainable livelihoods for displaced workers, as well as opportunities for people new to the work force. “Do we want an America that protects workers whose jobs have been taken over by robots,” she asked, or an America that supports workers who use their ingenuity to get ahead in the new economy?

Yet, Greenhouse pointed out, in Germany, which is in theory a more globalized nation—with more of its Gross Domestic Product going to trade—globalization is not vilified as it is in America. He observed that “one reason is we do not as a nation do enough for the losers in globalization.” What prevents us from providing more support? he asked.

Part of the problem is America’s wrongheaded assumption that we’re “number one,” said Stephen Cheung, president of the World Trade Center Los Angeles. “Number one in what? Obesity?” Americans who insist on the nation’s primacy when our fate is so deeply intertwined with that of other nations, he said, are chasing a past that no longer exists. In the meantime, he said, we run the risk that “other countries will take off without us.”

Another issue, said Nickelsburg, is that “we treat all industrial workers who lost their jobs the same.” In fact, there is a great difference between a 30-year-old prepared to move into the new economy and other workers who “are like Tom Joad in The Grapes of Wrath,” Nickelsburg added.

The key to turning around perceptions about globalization is in tending to these displaced workers, said Stone. When workers’ well-paid union jobs vanish in places like Detroit and upstate New York, replaced by low-compensation service jobs, that’s not an acceptable outcome, she said. “There’s nothing in the nature of the universe that says being a home health aide has to be a bad job,” she said. The solution lies in changing labor laws to enhance unionization and workers’ collective bargaining power, and offering substantial retraining opportunities, “so when they get new jobs, the jobs are better than the jobs they lost, rather than a steady decline.”

Whoever the “winners” and “losers,” and whatever the path to a better future, the panelists agreed that America should not turn its back on globalization. “There is no case in the economic history of the world where protectionism has improved the lives of the country,” Nickelsburg said.

During the Q&A, one audience member asked whether globalization had negatively affected access to education, which spurred the panelists to remark on both the value of an educated workforce and to lament the lack of support for broad-based improvements in education.

“The critical issue for the 21st century is workforce development and education,” Nickelsburg said. With technology changing the world, lifelong education—keeping up with the changes in technology—is “the most critical issue for a globalized world.”

Yet, Greenhouse noted, “as inequality has increased, the people on top seem reluctant to fund better education.”

The post Globalization Doesn’t Have to Be a Winner-Take-All Deal appeared first on Zócalo Public Square.

The Bank’s move comes as no surprise—not least, the “developing country” classification had long carried a disclaimer in the World Development Indicators. “The term is used for convenience” warned the 2013 edition, “it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development.” Two of the World Bank statisticians who work on the report recently noted that “the developing world” includes Malawi (GNI per capita of $250) alongside 40-fold richer Mexico (GNI per capita of $9,860).

There is a lot to be said against a sharp distinction between “developing” and “developed” based on a specific income cutoff—the Bank’s traditional approach, which used $12,763 as the magic number. Dissatisfaction with simple categorizations and the names applied to the resulting categories is as old as the yearning to engage in such categorization in the first place. Remember the Third World? The groupings are usually unwieldy and artificial, the terms for them imprecise at best, and condescending at worst. They also suggest an odd complacency among “developed” nations, as if we’ve crossed some finish line past which we exist in a state of nirvana.

Simply, there is no sign of natural country groupings with a cluster of poor countries and a cluster of rich countries separated by a wide income gap. Instead, there’s about an equal distribution of countries spread all along the income line from the poorest to the richest. And the development outcomes of countries like Brazil, just below the cutoff in 2014, aren’t too different from countries like Croatia, just the other side in “developed” status. Certainly, Brazil shares a lot more with “just-developed” countries on the other side of the line than with some of the world’s poorest countries like the Democratic Republic of the Congo or Malawi.

Then there’s the confusion of what amounts to moving goal posts: thanks to global progress on pretty much every indicator of development, today’s developing nations look more advanced on many measures than yesterday’s developed nations. About 1.7 billion people live today in countries with an income per capita above $10,000, which is more than the average (inflation adjusted) income in France or Germany in 1960. And about half the planet lives in countries with a 2010 average income above Italy or Spain in that earlier year.

Widespread development progress suggests that “developing” countries are far from hapless victims of a global system stacked against them, doomed to abject destitution and depression absent handouts and support from rich countries. To the extent that’s what people think the division between developed and developing is about, it is an unhelpful misconception. For one thing, thanks to economic growth, developing countries are responsible for a considerable majority of the world’s greenhouse gas output. If we want to slow climate change, they have to be part of the solution rather than sidelined on the grounds of incapacitating poverty.

At the same time, the income gap still yawns between countries like the U.S. and middle-income countries like China, which does suggest different capabilities and responsibilities. For all the convergence in incomes between rich and poor worldwide over the past two decades, those in developing countries are still only one fifth as well off as the average person in the developed world—and for people in the Malawis and Congos of the world the gap is far larger. Rich countries still have far more obligation and ability to take the lead and provide the bulk of financing to deal with global problems from climate change through pandemic preparedness to poverty.

This complex reality of growing capacity and wealth in the world’s poorer countries against the backdrop of a persistent spread in global incomes demands more than just abandoning a crude bifurcation of the countries of the world. What we need is a sliding scale of responsibilities and assistance—with the emphasis on assistance for the poorest countries and responsibility for the richest countries. But the international community–including the World Bank—is still some way from that vision.

The tottering nature of the baby-step that the Bank itself has taken is suggested by the online version of the World Development Indicators—presumably where the vast majority of users access the data. The developing country aggregate is still there, and still defined to the last dollar. In fact, the developed/developing cutoff is joined by the similarly unjustifiable cutoff between low- and middle-incomes as well as a bonus lower-to-upper middle distinction for the arbitrary-income-line aficionado. And even while the World Bank is busy declaring such divisions passé, it still decides which countries get access to cheap loans largely based on a particular income level and which countries can participate in its greenhouse gas emissions reduction support schemes based on (you guessed it) yet another income-based cutoff.

The Bank is far from alone: the global treaty that limits the production of chemicals which damage the ozone layer has a list of countries that get support to help them phase out production—largely decided by income level. And the Global Alliance for Vaccines and Immunizations has a cutoff for support to countries to buy vaccines—decided by income level. No sliding scale there, either. All the evidence suggests that, when they put their mouth where their money is, staff at the World Bank and other international organizations will continue talking about “developing countries”—at least until we invent another term for the same thing.

The post Good Riddance to the World Bank’s “Developing” Nations appeared first on Zócalo Public Square.

What’s depressing is that we will likely see this drama play itself out again, as we have before, whether or not the actors on stage are Greece and the European Union or some other over-indebted nation and its creditors. There may be elements to this story that are particular to the dynamics of the Eurozone, to be sure, but there is a more fundamental, less discussed, problem that needs resolving: the excessive reliance of nations on debt as a means of financing their development.

The Greek debt crisis is so similar to other debt crises of the past it’s haunting. Developing countries load up on loans from over-eager banks and other creditors based on rosy growth projections that do not materialize. Unable to meet their repayment obligations, they default or seek debt forgiveness. If the crisis is big and systemic, other governments and multilateral financial institutions (in this case, the European Central Bank and the International Monetary Fund) bail out banks trying to prevent a financial crisis that may cause large economic disruption. Pundits on both sides make loud noises. There is a usually a “moral hazard” camp arguing against any bailouts, opposed by an “extraordinary times require extraordinary measures” faction eager to do what it takes to avoid ruinous financial contagion. Rewind, pause, repeat. The pattern is all too familiar and a bit too frequent.

The fundamental problem is an excessive reliance on debt as the method to finance public spending. Such inflexible IOU’s shouldn’t be the only means available for sovereign nations to raise capital to invest in their growth and development. Like enterprises in the private sector, sovereign states should also be able to raise equity funding, which involves selling a stake in their future to investors eager to participate in, and benefit from, their success. This would give these states more room to maneuver when times get tough, and give their creditors a better return when things go well.

Consider the differences between Greece and Uber. If Uber wants to raise money to finance its expansion, it can go to a bank to seek a loan, or it can sell that equity stake to investors willing to share both the upside and downside risk, aligning their interests with those of the company. Short of selling shares in individual state-owned enterprises, there are surprisingly few avenues for sovereign nations and investors to partner up, and there is no good reason for Uber and other start-ups to have more financing options than an emerging sovereign nation does.

A traditional loan requires a fixed repayment, regardless of circumstances. Sure, different borrowers, including governments, pay different interest rates depending on their track record and prospects, but essentially once a debt is contracted, they do not repay more if outcomes exceed expectations, and their liabilities aren’t diminished if things sour. Lenders have generally looked to government debt as a relatively safe, conservative investment, which is why so many pension funds and individual investors in this country choose to invest in municipal bonds and Treasury bills.

That’s the theory, of course, but as the Greek case shows, the international financial system has gone too far in privileging debt over other financing options, with utterly predictable results. Once again, creditors and borrowers—not to mention the people of Greece and elsewhere in Europe who weren’t in on the decision to enter into these agreements—are entangled in a messy, time-consuming, and destabilizing drama emanating from a supposedly unimaginable default. Equity-like deals, where investors fully become invested in a country’s fate, are often made only after a costly default process, when some investors acquire “bad debt.” The value of the bad debt can rise and fall dramatically, depending on a nation’s performance. For instance, after defaults by Latin American countries, such as Argentina, in the 1980s, these countries’ old debt obligations were swapped for what were called “Brady Bonds,” which allowed investors to trade the debt for other financial instruments at deep discounts from their contractual values. The market values of Brady Bonds rose and fell with the economic performance of these countries, which means investors and sovereign debtors’ interests became somewhat aligned.

It would be far better to design an equity-like, risk-sharing arrangement between sovereign states and creditors from the outset, in which the required repayment were automatically lowered in bad times and scaled up in good times. For example, the repayments could be linked GDP growth, or to market prices of commodities that a country exports.

Finding new ways to package and sell risk-sharing equity stakes in a nation’s future would better align the interests of sovereign borrowers and its foreign or domestic creditors. The concern that countries receiving equity capital might be tempted to minimize their resources or performance to lighten their obligations is likely not relevant for small, growing countries. The consequences for reporting bad outcomes frequently would cause investors to lower their expectations of countries’ potential for growth and thus lower the valuation of their assets when any future financing is being negotiated. The hit that a country’s reputation would take for inaccurate reporting would simply be too high.

We should think of small, growing countries such as Greece (whose performance was healthy prior to the financial crisis, recession, and austerity of recent years) the way we think of promising, but volatile, tech start-ups. They should be financed with less debt, and more equity, perhaps even with riskier options—like stock-call options that are worth zero when performance is poor, but deliver outsized returns when things go well. This more diversified approach to sovereign financing would provide growing nations with natural shock absorbers. Their creditors would profit handsomely in good years, but countries like Greece would conversely benefit from some relief in bad years, as opposed to forcing a crash of the international financial system on account of a debt straightjacket they have forced themselves into.

In the meantime, regardless of what happens in Greece, a continued overreliance on debt to finance the expansion of developing economies will only mean that the next time—and there will be a next time—will be no different.

The post Greece Doesn’t Need a Bailout—It Needs Investors appeared first on Zócalo Public Square.

The moderator, New York Times Phoenix bureau chief Fernanda Santos, took particular note of the reputational problems. And the three panelists—two from Arizona (Phoenix Mayor Greg Stanton and former Arizona-Mexico Commission executive director Margie A. Emmermann) and one from Mexico (Signum Research CEO and economist Héctor Romero)—took pains to dispel those reputations.

“When I was coming here, a friend of mine told me you shouldn’t go to Phoenix or Arizona because you may get arrested,” Romero said. “People in the U.S. sometimes believe they should not go to Mexico because they could get killed.” But Romero pointed out that he is always warmly welcomed in Phoenix, and that, despite issues with violence on the border in some states, Mexico is one of the most secure countries in Latin America.

Stanton, the Phoenix mayor, said several times that he had used the bully pulpit to distinguish himself from Arizona politicians whose actions and rhetoric have given the state an international reputation for being anti-immigrant, and anti-Mexican. He has made 12 trips to Mexico and opened a trade office in Mexico City to deepen economic, cultural, and educational partnerships between his city and “the growing economic giant that is Mexico.”

“If we don’t take advantage of that here, shame on us,” Stanton said of Mexico’s growing middle class. He noted that Arizona had lagged behind the rest of the country in exports, and he wanted to double exports from Phoenix to Mexico in the next five years. “We don’t have a choice,” the mayor said. “We have to build that stronger relationship.”

Indeed, all three panelists said that economic ties between Arizona and Mexico already run much deeper than is commonly understood. Emmermann, the former Arizona-Mexico Commission director, said that interests in trade, education, and energy were converging on both sides of the border.

Noting that people still associate Mexico with low-wage and low-skilled jobs, Emmermann, now vice president of Molera Alvarez LLC, said: “That’s the Mexico of the past … You’ll find we’re talking less and less about differences, and more about similarities.”

“Some of my best friends are gringos,” quipped Romero, in agreement. “We are very similar.”

Romero said that commerce between the countries was five times greater than 20 years ago, when the North American Free Trade Agreement went into effect. Still, he said, “the U.S. economy is much more important to Mexico than we are to the U.S.—but this importance is growing very, very fast.” He argued that, in the U.S. economic competition with China, “the U.S. should see Mexico as a partner. In fact, we already are a partner.”

Stanton spoke with some envy about how export-oriented the Mexican economy is, and suggested it was a model for Arizona. “We can learn a lot from Mexico,” he said, pointing to Mexico’s free trade agreements with 42 countries around the world.

The panelists all took note of energy reform in Mexico and a commitment to renewal of infrastructure, and all three said those changes provided significant openings for companies from Arizona (and around the U.S.) to do more business in Mexico.

Education is also an important area for improvement—both in terms of its quality in both places, and in the need for exchanges. “One area where Mexico and the U.S. have not done a good job is student exchanges,” said Stanton.

Added Romero: “Only 15,000 Mexican students are at U.S. universities, which is a very, very small number. It should be around 60,000 students, maybe around 100,000 students.”

During the question and answer session with the audience, the panelists cited Texas—which provides in-state tuition to Mexican students—as a leader in exchanges that Arizona should emulate.

And Stanton made a point of saying the Lone Star State is better integrated with Mexico in other ways. “Texas is way ahead of Arizona when it comes to trade relations” with Mexico, he said. “Texas is way ahead of Arizona when it comes to tourism”—attracting Mexican tourists.

The audience questions also covered tomatoes and agriculture in Mexico, and the potential of the Port of Guaymas in the state of Sonora, which borders Arizona. The panelists predicted that Guaymas could grow into Arizona’s seaport, given its proximity.

Emmermann also noted the strong business and investment ties between Arizona and Canada, and said that Phoenix needed to think of itself as a crucial North American city, linking the U.S., Canada, Mexico, and eventually Central America. “We need to think bigger,” she said. “We need to be a trading bloc, a large trading bloc.”

“Phoenix connects the Americas,” Stanton said.

The post Arizona Could Become the Gateway to the Americas appeared first on Zócalo Public Square.