A Commonwealth of the Americas

If you really want to build back better, go big

Over the past few years, migration across America’s southern border has again become an extremely contentious political issue. Migration flows in the years prior to the pandemic mostly consisted of emigrants from Central America, fleeing the highest homicide rates in the world and an agricultural sector hit badly by a sustained, severe drought. But migration numbers have surged in 2021, and people are arriving from all over the Americas. It is not difficult to understand why flows have increased. GDP in Latin America shrank more in 2020 than in any other world region. Despite a rebound in growth this year, unemployment remains high in many countries. Natural disasters have again battered vulnerable countries: from hurricanes and tropical storms, to severe drought in South America, to the earthquake which struck Haiti over the summer.

Meanwhile, wages are soaring and labour is scarce in America’s economy, which has already overtaken its pre-pandemic level of GDP, and which is forecast by the IMF to outgrow Latin America in 2022 by more than two percentage points. Given the push and pull factors at work, it is no surprise that so many people are willing to take a chance on the dangerous trek to the southern border.

One might look around at the American economy and the difficulty employers have had getting workers to fill all the jobs that need filling and suppose that the answer might be to just...not deport people who want to come here to work. If native workers are finding it easy and attractive to quit bad jobs for better ones with more flexibility and higher wages, and if this means that some services face critical labor shortages, then creating pathways by which immigrants can easily come here and fill those jobs would seem to be a win-win scenario. 

But as good an idea as that seems to me, I think it’s also important to confront some difficult truths. One is that the politics of immigration in this country have become absolutely toxic. Polling does suggest, encouragingly, that Americans have become more supportive of increased immigration over the past couple of decades. But there is also a large and noxious minority who have swallowed Great Replacement narratives, and who seem willing to go to extreme lengths to put politicians who support strict immigration rules in positions of power: even undermining American democracy, if they have to. 

That’s point one. Point two is that higher levels of public support for increased immigration could very easily crumble in the face of larger flows of uncontrolled migration across the southern border. And point three is that larger flows of uncontrolled migration across the southern border are very likely to be a feature of the landscape for decades to come, thanks to climate change. Even in the near term, the problem could grow worse if weak growth in the aftermath of the pandemic exacerbates problems of social unrest and political instability.

So while I personally think that the United States has the economic and social capacity to absorb large numbers of migrants, and indeed would likely enjoy long-run benefits from doing so, in the absence of a sudden and profound moral revolution in this country, the future is one in which migrant flows either destabilize US politics in very unpleasant ways, or in which we find ourselves making ever uglier moral compromises in our policing of the border (or most likely both). 

Since those aren’t attractive outcomes, the Biden administration is looking to take some action to address the situation. It has promised to spend $4bn in Central America tackling the “root causes” of migration, although it remains to be seen how that money will be spent and with what effect. In addition, the administration seems keen to make Latin America an early priority in deployment of funds through its Build Back Better World (B3W) partnership. We remain short of details on B3W as well, and in particular on how one is supposed to pronounce B3W. But it is, broadly speaking, a plan to use public and private money to fund infrastructure investments in poorer countries, in a manner similar to China’s Belt and Road Initiative but ideally with better standards and more transparency (and with the soft-power returns accruing to the US).

Depending on the details, these things might prove useful. But while it may seem naive and not in keeping with the current mood around the country, I would like to suggest that Biden should in fact go much bigger and bolder when it comes to Latin America. I think he ought to propose a plan to deepen economic integration across the region, to create a Commonwealth of the Americas.

There are a few reasons why this strikes as something more than a nutty pipe dream. First, the US is beginning to perceive how important it is, for both moral and practical reasons, to make headway against uncontrolled migration. If we can help other countries, we help ourselves. And we can help them. Poorer countries, especially in Central America and the Caribbean, can’t easily tap global capital markets or domestic savings to raise money for critical investments. That means that they underinvest in capital and in measures to harden capital against extreme weather, which then gets destroyed when a major hurricane comes through, after which they rebuild on the cheap once more. Richer parts of Latin America often can raise money but nonetheless fail to invest as much as they should; infrastructure in South America is, on the whole, quite a bit worse than in East and South Asia. B3W money which can be made available on good terms, but only if used transparently and on good projects, could contribute meaningfully to improvements in infrastructure, even in the region’s middle-income countries.

But importantly, the pay-off to these investments will be limited unless there is a shift in economic policy across much of Latin America. From the late 1990s into the 2010s, emerging economies enjoyed an unprecedented economic boom. Most of the benefits of this boom were captured by fast-industrializing countries in East and South Asia, however, because those places were extremely successful at attracting pieces of global supply chains. Latin America did well during some of these years, but mostly because its economies tended to export commodities which were then used in production in industry in Asia. Manufacturers across the Americas mostly sat out the supply-chain boom; supply-chain trade in the region rose by just 0.1% from 1995 to 2015, compared to 19% across the rest of the world.

Why did Latin America miss the boat? The problem was partly bad luck. Mexico was actually well situated to benefit from supply-chain trade, but had the bad fortune to specialize, economically, in stuff that China was also good at producing: Mexico basically suffered from a China shock in much the same way the United States did. Poor infrastructure mattered too. But as a piece I wrote for this week’s issue explains, trade policy was a big part of the story:

Latin American governments are enthusiastic negotiators of trade agreements: nearly 450 bilateral deals have been signed since 1973. But more than 370 are intra-regional, and do not involve deep integration with richer countries which supply technology and high-value inputs, and which are avid consumers of advanced manufactures. In terms of overall trade restrictiveness, with respect to both tariff and non-tariff trade barriers, Latin America is the second most inaccessible region of the world, pipped only by sub-Saharan Africa, according to the World Bank.

Thus although the region has a big manufacturing industry, its growth has been disappointing. Nearly half a million Brazilians worked in the country’s automotive sector in 2014. But the trade restrictions which protect the industry shut it off from foreign suppliers—denying Brazilian producers access to their know-how and technology—and coddling inefficient firms. Brazil exports its cars to members of Mercosur, a free-trade agreement which also includes Argentina, Paraguay and Uruguay, but does not source parts from outside the region, nor has it had much success selling cars on global markets.

But now, Latin America gets a do-over! American firms are currently confronting the fact that production in China exposes them to whatever odd reforms the Communist Party decides to implement and also to geopolitical risk thanks to increasing tensions between the US and China. Companies are also confronting the fact that supply chains are subject to all sorts of vulnerabilities, and they’re realizing that putting their eggs in more baskets might be a very sensible thing to do. Geographically speaking, Latin America is a really attractive candidate for relocation of production. When it comes to supply-chain trade, though, which entails lots of importing and exporting, a high cost to move goods across borders is just unacceptable. But if Latin American economies could be persuaded to dramatically lower trade barriers, harmonize provisions of existing trade agreements, and improve customs and border procedures, then things might begin to look very enticing indeed to rich-world firms considering new investments.

This is the point at which all the objections can no longer be suppressed. Wait, so America is going to launch negotiations on a massive new trade agreement, after the debacle of TPP? And get hard-bitten protectionists and a bunch of Marx-loving leftist presidents to sign on? And then companies will rush in with their money, not worrying at all about political instability or expropriation risk?

These are all legitimate points. But I don’t think they’re fatal ones. I don’t know exactly how a bold new trade initiative would fly in the current US political climate, but I feel like maybe things could be different today than they were a year or five or twenty ago. The upshot of a deal would not be a flow of jobs from the US into Latin America; rather, it would be about reshoring some work which left the US long ago and went to China and, moreover, about building supply chains which are less vulnerable to political and economic shocks in East Asia. Opposing the deal would be tantamount to saying, yes, we should continue to import everything from a major geopolitical rival—or at least that’s what backers of integration could quite reasonably argue.

Then, of course, there is the migration point. The richer Latin American economies are, the better able they will be to protect themselves against the costs of climate change, the less we will see economic hardship translate into migration flows, and, additionally, the more of Latin America there will be which is attractive to potential migrants. Absorption of flows of climate refugees will be easier on all rich countries the more rich countries there are, because there will be fewer refugees and more desirable places for refugees to go.

What about getting Latin American governments on board? One thing to note is that quite a lot of Latin America would likely be eager, or at least very open, to discussions about a proposal like this. Mexico and Peru are full members of the CPTPP (which is what TPP became after the US ditched it). Uruguay seems keen to negotiate new deals. Chile has been historically, though it is facing something of an identity crisis associated with the fact that growth over the past two decades has been very unevenly distributed. But look, many governments know that what they’ve been doing isn’t working. And, furthermore, if negotiations over integration were closely linked to access to massive amounts of investment money through B3W, as I think they should be, then that could convince some skeptical governments to take the plunge.

And what about expropriation and all of that? It’s a risk; hell, it’s a risk in China. I think one thing that a Commonwealth of the Americas might do to reduce this risk is to construct a body of supranational law subject to rulings by a supranational panel of some sort. Now, one has to be careful here, as anything that smacks of political integration is likely to attract way more suspicion than something which is purely economic. Everyone involved should be explicit from the beginning that this is not the first step toward “ever closer union”, or open borders, or the end of national sovereignty. (While they’re at it, they should forswear anything that looks like a shared currency.)

But some sort of decision-making body which includes members of participating countries would be a useful place to work out responses to shared challenges. It could increase the extent to which the project is perceived as cooperative, rather than imperialistic. It would provide a place to deal with violations of agreed-upon rules that isn’t the US court system. And it could be an institution through which all participants push each other to respect the rule of law and, indeed, democracy. Democratic governance should be part of the deal.

The exciting thing is that if it worked, it could touch off a virtuous cycle: in which growth boosts income, which further boosts trade, which in turn boosts income; in which investments by some companies attract investments by others; in which greater economic security encourages greater political stability which in turn enhances economic security; in which building of infrastructure and green energy contributes to stronger economies, which reduce the incentive to engage in the unsustainable agricultural practices and deforestation that threaten to exacerbate the costs of climate change.

I know how hard it is to imagine an ambitious plan like this getting off the ground. It is all too easy to imagine the way in which the US polarization machine would divide people on the subject, what Tucker’s monologues would say, how it would all be ripped up anyway when Trump wins in 2024, and so on. But it doesn’t have to be like that. Despite the difficulties that the world faces there are opportunities for mutual gain, across rich countries and poor ones, which could make hundreds of millions of people better off. It may just take a little daring.

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