TRADE TIES THAT BIND3

The Trade Ties That Bind — Can the U.S. Economy Break Free from the Continent?

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Can the U.S. Economy Break Free from the Continent?

Getting it in writing can fail, especially as it pertains to mineral rights in foreign subsoil. On March 18, 1938 Mexican President Lázaro Cárdenas signed an order that expropriated the assets of foreign oil companies operating in Mexico. This was followed by the founding of Petróleos Mexicanos (PEMEX), a state-owned firm that became the monopoly operator in a country that in the 1920s rose to be the world’s second-largest oil producer. As for who got the boot, the Mexican Eagle Company was a British subsidiary of the Royal Dutch/Shell Company which accounted for 60% of Mexican oil production. American-owned firms including Jersey Standard and Standard Oil Company of California, now Chevron, made up roughly 30% of total production. Because the bulk of oil was exported, so were the associated profits, a situation worsened in the Great Depression when demand crashed producing a glut in global oil supplies. Further fanning the flames, the oil giants paid Mexican workers half as much as other employees working in the same capacity.

The labor unrest culminated in the 1937 oil strike and ultimate nationalization of Mexico’s oil industry. Retaliation came in the form of an oil embargo which halved Mexican oil exports and pushed the country to become the primary supplier of Nazi Germany. While Britain was able to sever its diplomatic ties, Mexico’s close proximity gave the United States no such luxury. Upon the outbreak of World War II, the U.S. pressured American oil firms to settle. On April 18, 1942, the U.S. and Mexican governments signed the Cooke-Zeveda agreement which paid out roughly $29 million in compensation. Holding out until 1947, the Brits eventually recovered $130 million. By 1950, attempts at reconciling commercial ties had failed sending U.S. operators into the friendlier domiciles of the Middle East and Venezuela.

As for Mexico’s acquiescence, the combination of America’s ascent to superpower status and the advent of the Second World War forced the issue. Trade with Europe was slowly displaced by the growing appetite of its northern neighbor and Mexico was and is a democracy. Within two days of the attack on Pearl Harbor, Mexico cut ties with Germany and Italy. The sinking of two Mexican oil tankers by German U-boats in the Gulf of Mexico was the last straw. On June 1, 1942, President Manuel Ávila Camacho issued a formal declaration of war against the Axis Powers. U.S. Secretary of State hailed the moment as, “evidence that the free nations of the world will never submit to the heel of Axis aggression.”

Mexican soldiers would go on to fight valiantly as did those of Canada, America’s neighbor to the north. Since that bygone era, much has changed in relations between the three nations, especially as it pertains to roles played in the global energy industry. The relatively recent rise of Canadian and U.S. production stands in stark contrast to the 40-year decline in Mexico’s production.

Regardless of the source of commerce, there is an undeniably tight symbiosis between the economies of the three countries. With Mexico in technical recession and Canada’s economy slowing significantly, it’s fair to ask whether the U.S. expansion can continue even if both of its neighbors are in recession. Given such a feat has never been possible in the past, then is it different this time?
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