Renegotiate Nafta? Mexicans say get on with it
For more than two decades, free trade has been at the heart of Mexico’s relationship with America, responsible for pumping a stream of vehicles, audio components and avocados north and cheap corn, cattle and software south.
To the nation’s leaders, it was central, vital, nonnegotiable. At least until President Trump came along, promising to upend nearly $500 billion in annual trade between the two countries if it could not be re-engineered more in America’s favor.
Now, the Mexico’s leaders have a new priority: urging their American counterparts to hurry up and get on with it.
While free trade has long been an article of faith in Mexico, uncertainty over the fate of the North American Free Trade Agreement is hitting the country hard.
There has been an abrupt slowdown in foreign investment, pinching off much-needed capital as investors wait to see how things shake out. Last year, such investment fell by 6 percent, a prelude to what analysts have predicted will be a 21 percent drop in 2017. Add to that a fluttering peso, lowered growth expectations, rising interest rates and looming political headwinds, and the urgency becomes clear.
Mexico, and its investors, need certainty.
For the moment, the Americans are not giving it to them, and don’t seem in a rush to do so. This month, Commerce Secretary Wilbur L. Ross said it would be later in the year before real talks even started — after a mandatory 90-day consultation period with Congress, which has yet to start.
The delay has irked the Mexicans, who didn’t want to renegotiate the pact in the first place.
“From the Trump and American perspective, this is purely an optional problem,” said Michael Camuñez, the president of ManattJones Global Strategies and an assistant secretary of commerce in the Obama administration. “They have taken one of the most productive trade relationships in the world and amazingly have turned it into a problem.”
Driving the pressure is an especially delicate political environment in Mexico. President Enrique Peña Nieto’s approval ratings are near single digits, and further delays in clarifying the future of Nafta could imperil not only growth, but also employment at a time when the government can least afford to lose support.
Adding to the uncertainty are midterm elections in the State of Mexico, the country’s most populous, from which the president hails. The state, a longtime center of power for Mr. Peña Nieto and his party, will hold elections on June 4, and it is far from clear that his party will win. A loss would be a devastating blow to the party, which has never lost there before, and would spell trouble in the 2018 presidential elections.
Which presents yet another paradox: The longer the Americans wait on Nafta negotiations, the more political pressure it places on Mr. Peña Nieto, reducing the flexibility he has to accommodate demands, or surprises, from Mr. Trump’s team.
For instance, if job losses begin to mount within the next six months, as some economists predict, the public pressure on the president may be so immense he could have a much harder time selling a revised agreement to Congress and Mexicans at large.
“The longer we wait, the harder it is going to be for Trump to get what he wants because the nationalist pressure on Peña Nieto will be cumulative,” said Pamela Starr, an associate professor of international relations at the University of Southern California. “The longer he is in the presidency, from today forward, the more of a lame duck he is.”
All of this means that the leverage Mr. Trump is looking for could start to diminish.
Already, the Mexican government has grown more stridently critical of the Trump administration’s stance on Nafta. The Mexican economic minister has said the nation will walk away from any deal that does not suit the country’s needs, and even proffered a list of deal-breakers: any sort of discussion of paying for a border wall, taxing remittances or carrying out a so-called border adjustment tax.
At the same time, there is a growing awareness that dealing with Nafta, a campaign priority for Mr. Trump, has suddenly taken a back seat to more pressing battles. And Mexicans have taken note.
“It is clear that Trump’s priority right now in terms of his agenda is to try to pass Trumpcare, and we know how long that takes,” said Carlos Elizondo, a professor at the School of Government at the Monterrey Institute of Technology and Higher Education. “The outcome of that debate and process in the U.S. Congress will undoubtedly affect every other item on his list, including, of course, Nafta.”
That could be a saving grace. Those reading the tea leaves of an eventual negotiation are hopeful that with Mr. Trump distracted, administration officials, including Mr. Ross, Secretary of State Rex W. Tillerson and others will take control of the talks. Both men have run global businesses in complex industries, and many here hope that will give them a more nuanced view of trade.
An evolving belief in the realm of business people, academics and even officials is that members of Mr. Trump’s cabinet will understand the importance of Nafta, and move to preserve and expand it — not tear it apart.
“When you know the kind of value chain that we have, you understand that it is a very difficult world to destroy, almost impossible,” said Juan Pablo del Valle Perochena, the chief executive of Mexichem, a Mexican chemical and building materials manufacturer. “There is so much at stake, of course, more for Mexico than the U.S., but there is a lot of value already in place. And when people understand that, they don’t worry so much.”
Still, the uncertainty has had a clear impact on the Mexican economy. The peso dropped by double-digit percentages after Mr. Trump’s election, forcing the central bank of Mexico to raise interest rates in February to an eight-year high to anchor inflation and bolster the currency, which has since rebounded.
Expecting further pressure from the tense relationship with the United States, economists from an array of institutions have revised downward the expected 2017 growth for Mexico. Bancomer, a Mexican bank, for instance, revised its growth expectations for the Mexican economy to 1.0 percent for the year.
Delays that might bleed into 2018 will place negotiations in the middle of a presidential election year in Mexico. Indeed, some analysts suggest that Mr. Peña Nieto could kick the decision to his successor if negotiations go on too long. That, according to some, could be disastrous for those hoping to preserve Nafta.
The leading candidate, for now, is Andrés Manuel López Obrador, a populist whose candidacy has been given a major boost by the election of Mr. Trump. Mr. López Obrador, a two-time candidate who nearly won the election in 2006, has promised to end a relationship of “subordination” to the United States, while focusing on domestic issues.
It is unlikely that Mr. López Obrador will take as conciliatory a line in negotiations as the current administration.
“The temptation to simply delay the negotiation until it becomes the next president’s problem is real,” Mr. Elizondo said.