Articles and Essays by Eric D. Wanger

By Eric D. Wanger and Matthew Nickerson

Trump’s midnight tweets about Mexican border walls should concern all Americans, but especially Chicagoans, whatever their political stripe. More than 1.7 million people in Illinois are of Mexican origin, and we trade at a rapid pace with Mexico. Illinois’ exports to our southern neighbor totaled $9.1 billion in 2015. That’s nearly twice what we sold to China:

Behind every fear is a wish. Psychiatrists know this. Authors and screenwriters know it too. People always seem to do the exact things that bring their worst nightmares into being. It is a way to relieve the tension of the fear.

Ironically, actual reality produces less anxiety than its apprehension.

We have all seen how this behavior results in unintended consequences. The buddy who picks a fight with the girlfriend he worries about losing–and loses her. The friend who shows up late to a job she needs–and gets fired. The unintended consequences grow so predictable in some friends and loved ones that we wonder why they act surprised when it happens. American slang contains a one-word response to this behavior that is perfect, if a bit rude: “duh!” The Urban Dictionary offers an equivalent phrase: “Thank you, Captain Obvious.”

Nations are run by people, so it shouldn’t surprise us when countries succumb to the same self-destructive compulsions as the people in charge. When a nation’s power is concentrated in one person, we should expect more intense compulsions. And the more concentrated the power, the more “human” the responses we should expect.

This is no more true than with President Donald Trump’s behavior toward Mexico. He spent his entire campaign railing against the menace of immigration from our bad, broken neighbor to the south. Unfortunately, even prior to assuming the big chair, he was already compulsively trying to make his fears come alive. Trump was elected with a promise to build a towering wall to keep bad Mexican hombres out of America and keep American companies from moving their factories south of the border. But in true Freudian fashion, Trump will only make his own nightmare real. This beggar thy neighbor approach to diplomacy is already changing Mexico in ways we will all come to regret. And, ironically, his words and policies will only increase Mexican immigration into the U.S., by driving Mexican wages down and reducing opportunities for Mexicans at home.

Look at the data:

Mexican immigration here, legal and illegal, declined after the Great Recession. The Mexican-born population in the United States peaked at 12.8 million in 2007, falling to 11.7 million by 2014, according to the Pew Research Center. One reason was our depressed job market. Another was the muscular Mexican economy. The Mexican peso rose in value, Mexican wages jumped,  Mexico’s petroleum industry thrived with rising oil prices, and Mexican exports grew more popular. Mexico’s prosperity made it a better neighbor in just about every way. Mexico even became more supportive of President Barack Obama’s oft-forgotten tightening of border security and increased deportations. All in all, Mexicans had more opportunity in Mexico, so fewer came to the States. More people returned to Mexico, or never left.

Trump wasn’t even president before his threats started shaking the Mexican economy. And now he is giving every indication that he will carry out his campaign promises to dump NAFTA, the North American Free Trade Agreement, and implement a vigorous program of import tariffs. While a 2,000-mile wall along the southern border of the United States may be a silly joke from a security, cost or engineering perspective, it is no laughing matter to the people who must decide whether to invest in Mexico.

Since his victory, the Mexican peso has dropped like a rock and interest rates on government bonds have risen sharply. Investors, both foreign and Mexican, now have to worry about this mercurial protectionist before they decide whether to invest in Mexican plants and equipment.  It’s only been a month since Ford canceled its plan to build a $1.6 billion auto plant in Villa de Reyes.

Trump is already doing everything in his power to shape Mexico into the neighbor he loves to loathe, one deprived of jobs and starved of capital, just as he tweets at midnight about its impoverished citizenry yearning to come north to leech off its wealthy gringo neighbor.

There is a lot that can go wrong:

• Mexico exports 80 percent of its goods to the United States. If Mexican companies face tariffs, they will sell less to the U.S. and hire fewer workers. There will be fewer jobs and lower wages. This applies to agricultural products just as it applies to cars.
• The global energy markets are volatile and depressed. Oil has always been one of Mexico’s great exports, but even if oil recovers, the Mexican producers face the prospect of protectionist U.S. tariffs.
• As the U.S. dollar continues to rise against the Mexican peso, the incentive to get paid in dollars only increases. This creates a huge incentive for Mexicans to come to the U.S. for work, legally or illegally.
• Selling illegal drugs into the U.S. becomes an even more important source of foreign exchange, and thus doing all the distasteful things that a cartel must do to build and maintain distribution networks only increases in importance.
• Mexicans, looking at a home country with fewer jobs, will want to travel to the United States and earn valuable dollars.

In the first half of 2015, Mexico exported more cars, trucks and parts to the U.S. than Japan did. The Mexican economy runs on agriculture, energy and manufactured goods, with much of these goods exported to the United States. Does Trump want Mexicans to start pouring into the United States like they did starting in the 1970s? If he does, the best way to do it is to kill free trade with tariffs and to tank the peso. Some might say, “Hey, Caption Obvious: duh!”

A man named Miguel Hernandez talked in October about the effect Trump’s election might have on his own behavior. Hernandez, who had worked illegally in California, returned to Mexico because, among other reasons, his employment options were about as good at home. A Daily Beast reporter interviewed Hernandez in Mexico City as Trump campaigned for a trade crackdown. “If he keeps it up,” Hernandez told the reporter, “I may have to go back to the United States.”

A beggared Mexico will also work harder to export goods to the U.S. that trade limits and walls can’t stop: illegal drugs with all the violence and corruption that implies. Straightforward economics predicts protectionism will increase the murder rate, on both sides of the border, required to feed America’s voracious demand for drugs.

In truly Freudian fashion, Trump may revive the reality he resents. He campaigned against a trend that had already meaningfully self-corrected, the flow of illegal Mexican immigrants into the U.S. A wealthier Mexico was behaving like a better neighbor, sharing more of its good and less of its bad. Furthermore, Mexico was working much harder to stem the flow of immigrants from Central and South America sneaking across our border. A sensible U.S. president would be wise to desire a happy and prosperous Mexico, the kind of neighbor we want.

Behind every fear is a wish. And nations, like the fallible humans that run them, seem to compulsively create the demons they fear. Free trade with a prosperous Mexico solves a lot of our problems. But a Mexico starved of capital, free trade and low-cost access to its biggest export market will inevitably send us fewer good hombres and more bad ones. Thank you, Captain Obvious!

Wanger is an investor based in Chicago. Nickerson is a historian.