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The Global Connection : The Mexico peso crisis highlights a new reality: The distinction between foreign affairs and domestic concerns is increasingly meaningless.

February 05, 1995|Michael Clough | Michael Clough is a senior fellow at the Council on Foreign Relations

NEW YORK — Forget Chechnya, Bosnia, Haiti. And if you still remember Rwanda, Somalia and the Persian Gulf War, forget them as well. The Mexican financial crisis rep resents the first real test of America's ability to respond to the challenges that are most likely to dominate the future global agenda. And judging by the unprecedented steps President Bill Clinton was forced to take last week to circumvent mounting public opposition to his efforts to help Mexico, we are failing.

The issues raised by the peso's sudden collapse defy the old ways of thinking about foreign policy. Indeed, they call into question the very idea that foreign affairs can be distinguished from domestic concerns. Today's "foreign"-policy issues mostly involve relationships among increasingly integrated but also more diverse and divided societies, not nation-states. One result is that the influence of national governments and internationally oriented elites is declining.

One of the most dangerously misleading myths being promulgated by many foreign-policy "experts" is that we are finding it difficult to meet the challenges of the post-Cold War world because Americans are turning inward. In fact, Americans are more connected with the rest of the world than ever before--and also are more aware of how developments beyond their borders can affect their livelihoods, health, personal security and moral peace of mind. The problem is that they are unconvinced that the people who make "foreign" policy in Washington understand their problems, share their interests or reflect their values.

The indicators of Main Street America's growing global connections are many. Two spotlighted by the peso crisis are trade and investment.

During the past three decades, the share of U.S. gross national product represented by exports and imports has more than doubled. According to one recent estimate, exports now amount to roughly 23% of total output of manufactured goods and imports nearly 28% of domestic consumption of manufactured goods. As a result, millions of American jobs are now linked to trade flows.

An even more dramatic shift has occurred in investment patterns. A decade ago, a relatively small percentage of Americans owned stocks, and an even smaller percentage had any investments abroad, direct or indirect. Today, as a consequence of the explosive growth of individually owned mutual funds, the number of people on Main Street tied to Wall Street has increased tremendously. Nearly 40% of Americans now own stocks either directly or indirectly; and of the more than 25 million households believed to participate in mutual funds, nearly one-half have annual incomes below $50,000.

A rapidly growing percentage of these investments, furthermore, are in foreign stocks. Between 1984-94, the value of internationally oriented mutual funds grew from just under $6 billion to more than $135 billion. As of late 1993, nearly half of all new mutual-fund investments were going into these funds, and more and more of them into such emerging markets as Mexico, China, India and South Africa. One Merrill Lynch Latin American fund grew from $69 million in net assets, in 1991, to $921 million by August, 1994.

In the near term, the volatile Mexican stock market and rising U.S. interest rates are causing many investors to bring their money home. In the long run, however, the shares of foreign stocks in Americans' portfolios are certain to increase--as will the share of foreign earnings on the balance sheets of U.S. companies.

Beyond economics, the steady flow of immigrants, legal and illegal, into the United States has created a new set of demographic realities that inextricably link our future with the futures of China, India, the Philippines, Vietnam and, most significantly, Mexico. Between 1971-90, nearly 12 million immigrants entered the United States legally, more than the total number who had entered in the preceding 50 years. While changes in U.S. policy made it easier for immigrants to legally enter, it has been developments in other countries that have determined who has come, legally and illegally.

For example, in the late '70s and early '80s, wars, droughts and revolutions in the Horn of Africa caused thousands of Ethiopians to come to Washington, D.C. Similarly, conflicts in El Salvador, Guatemala and Nicaragua transformed whole neighborhoods in Los Angeles. And given the close and longstanding bonds between China and Chinatowns in Los Angeles, San Francisco, New York and other U.S. cities, coupled with the growing numbers of Chinese students on U.S. campuses, it is not difficult to imagine the kinds of future immigration pressures that would be created by widespread unrest in China with its billion-plus population.

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