| Mexico | Aug 03, 2019
Mexico and the US are in the process of reconciling their conflicting economic interests.
The volume of trade between Mexico and the US is staggering by any standards. In 2018, the US exported just under USD300 billion worth of goods and services to its southern neighbor while importing approximately USD372 billion, which signifies a notable USD72 billion trade deficit in Mexico’s favor, according to the US Office of Trade Representative.
This massive and lucrative exchange has been facilitated by the North American Free Trade Agreement (NAFTA) since 1994. However, the NAFTA deal and the US’ trade deficit with Mexico became the focus of Donald Trump’s 2016 presidential campaign, among other Mexico-related issues that Trump capitalized on.
Not surprisingly, Trump’s ascension to power in 2016 started a new chapter in Mexico-US relations. The newly elected president had spent a considerable part of his presidential campaign questioning the legitimacy and fairness of the economic dealings between Mexico and America, calling for not only a renegotiation of NAFTA but also a restructuring of all monetary interactions.
This was by no means the first instance of friction between the two countries. US-Mexico relations have been through many ups and downs over the last two centuries. Despite clear cultural, linguistic, and economic differences that set the two nations apart, Mexican and American interests are largely intertwined, though this does not mean bilateral relations were ever perfectly smooth.
The two countries are arguably the other’s most strategic neighbors, sharing a 3,145km-long and much disputed border that, according to the Trump administration, is widely used by criminal groups for the trafficking of drugs, guns, and humans.
Relations between the two nations in the post-Trump era were further marred by the US president’s insistence on the construction of the notorious border wall at Mexico’s expense as well as his active measures to deter American and non-American companies from investing in Mexican industries.
Mexico took offense at the wall proposal from the beginning. When Trump signed an Executive Order in early 2017 to fast-track the construction, Mexico’s then-president, Enrique Peña Nieto, called off an official visit to the northern neighbor as a sign of protest.
Andrés Manuel López Obrador, the new president in office, has acted prudently thus far, refusing to bring up the subject in his first phone call with Trump, though he is known to be a vocal critic of the idea.
On the trade front, things took a turn for the better in August 2018, when the US and Mexico reached a preliminary accord without Canada. Robert Lighthizer, the US’ trade representative, described the new deal as an “absolutely terrific” win-win pact which would lead to job-creation not only for Americans but also for Mexicans.
A two-way negotiation sidelining Canada, however, infuriated Ottawa. Trump’s election in 2016 had also thrown the US-Canada’s mostly benign relations into uncertainty, particularly in light of the US’ refusal to grant Canadian steel and aluminum industries tariff exemptions. Finally, however, Chrystia Freeland, Canada’s Minister of Foreign Affairs, joined the talks in late August 2018.
A new trilateral accord was ultimately achieved on September 30, 2018 and the pact’s new incarnation is referred to as the United States-Mexico-Canada Agreement (USMCA). The agreement remains to be ratified by legislators in Canada and the US.
Among other updates, the terms of the new deal demand that at least 75% of a car be produced in North America; otherwise, the final product will not be exportable under the trade agreement. This is intended to stop Mexican automakers from using inexpensive Asian components in the cars bound for the US market in order to achieve competitive pricing.
Although Mexico is not exactly happy with such modifications to NAFTA, it has agreed to compromise. This is not to say that Mexico has yielded to the US’ every demand. The American side, for instance, envisioned an automatic expiration date in the agreement, which was opposed by Mexico due to its discouraging impact on investors, and the American side finally gave up the demand.
Although it is far from ideal, the new accord is a de facto that will influence the lives of not only nearly half a billion souls living across North America but also the global economy. We will see the impacts of the new deal in 2019 and 2020 as it plays out in the real world.