Why the Pact for Mexico Matters for the U.S.

by Reihan Salam

Between now and the end of the year, Mexican President Enrique Peña Nieto hopes to pass a series of ambitious reforms, including a tax reform that is designed to reduce the central government’s dependence on oil revenue and an energy sector reform that aims to modernize the oil and gas sector. While there is concern that the tax overhaul might damage Mexico’s growth prospects, as it raises taxes on capital income and on middle-income households, the plan is that energy sector reform will spark an investment boom, as foreign capital rushes in to upgrade Mexico’s energy infrastructure and to exploit offshore hydrocarbon reserves. Mexico’s conservative opposition, the National Action Party (PAN), opposes Peña Nieto’s tax increase, yet the PAN supports energy sector reform, albeit of a more ambitious variety than the ruling centrist Institutional Revolutionary Party. Specifically, Juan Montes of the Wall Street Journal reports, the PAN wants to allow foreign firms to share both profits and oil production with its domestic partners, and not just in profits and risk. 

The outcome of this debate is arguably more important for the U.S. than the outcome of the domestic debate over near-term spending levels, as a more prosperous Mexico with the resources to upgrade its infrastructure and its skill level will prove a boon to U.S. economic growth and a valuable strategic partner, whether or not Congress chooses to implement a medical device tax. Moreover, 33 million of the 315 million people currently residing in the U.S. are of Mexican origin, most of whom are Americans, many of whom maintain strong connections to Mexico. Though the U.S. relationship with Mexico is often considered an issue of marginal significance, that will change as Mexico grows more affluent and more assertive, as Mexican Americans achieve political influence commensurate with their numbers, and, perhaps, as the number of U.S. expatriates residing in Mexico increases, a development that could yield significant benefits for both countries.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.