The continuing flow of drugs from Mexico to the United States has been a major source of tension between the two countries over the past two decades. This Note, based on interviews with U.S. and Mexican government officials and on an extensive body of literature (official U.S. reports, journal articles, and scholarly literature), analyzes the interaction of the two countries with respect to drugs. It begins by developing estimates of the value added in marijuana and opium/heroin production in Mexico, itself a country with a very small drug use problem. It then examines the political setting of drug production and trafficking, arguing that to understand the response of the Mexican government to drug production, it is necessary to recognize the long history of smuggling in both directions across the U.S.-Mexican border and to appreciate Mexico's long-standing concerns with maintaining national sovereignty. The authors also examine the emergence of a new Mexican national security apparatus and doctrine, which has played an important role in forming the country's response to the growth of cocaine transshipments in the late 1980s. Mexican President Carlos Salinas de Gortari has intensified efforts to fight corruption and increase the effectiveness of Mexican programs. Nonetheless, estimated drug production grew substantially in the first two years of the Salinas administration. Thus U.S. concern remains focused less on the level of drug exports from Mexico than on the perceived integrity of Mexican control efforts.