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What consequences does Mexico face if it ends NAFTA?

Given the possibility that the next government will threaten the future of the Free Trade Agreement, Mexico must abide by the consequences

What consequences does Mexico face if it ends NAFTA?

A few months after a year of negotiations between Mexico, the United States and Canada on the North American Free Trade Agreement (NAFTA), and a couple of weeks before the presidential elections in the Aztec nation, fears grow that with the change of government the treaty will be eliminated.

Leer en español: ¿Qué consecuencias enfrenta México si acaba con el TLCAN?

This presumption took hold after the candidate for the presidency of Mexico, Andrés Manuel López Obrador (AMLO), indicated during his third debate that the cancellation of the NAFTA should not be a "fatality" for Mexico. "The field, for me, is the most important factory in the country. We can produce what we consume in Mexico, that would strengthen the internal economy. I will try to maintain the treaty, but it cannot become a fatality for Mexicans," said the candidate who points as a favorite in the local polls.

To this statement are added the statements given by the main economic adviser to Lopez Obrador, Gerardo Esquivel, who said in an interview with Bloomberg that "it is preferable not to have an agreement than to sign a bad one." This is a comment that replicates the one mentioned at the beginning of 2018 by Canada's prime minister, Justin Trudeau.

According to explanations given to CNN by Control Risks' risk analyst, Eduardo Arcos, despite AMLO's recent negative comments about NAFTA, his rhetoric about the treaty throughout the campaign has been positive and highlights the benefits of this for Mexican politics. However, the concern lies in the terms of the agreement and that is where the signature could be withdrawn.

You can also read: The renegotiation of NAFTA, favorable or detrimental to Latin America?

Mexico, the country with more to lose

Mexico is perceived by many specialists as the country that would lose the most in the event of the cancellation of NAFTA. Only in exports to the U.S. the Aztec nation generates 25% of its GDP, so a departure from the treaty would imply a renegotiation of these shipments and a commercial paralysis that would affect the economic growth of the country, according to reports from the Bank of Mexico.

As economist Gregory Daco of Oxford Economics points out to The Huffington Post, although the three countries would be affected by the dissolution of NAFTA, Mexico would be the main loser. This is because, while Canada and the United States would suffer a temporary drop in GDP of 0.5%, the decrease in GDP in Mexico would still be 2% in 2022.

If Mexico gets out of this economic engineering, it would stop exporting to the U.S. and Canada mainly products of electrical machinery, fruits, vegetables, chemicals, passenger vehicles, wood, paper and supplies for the transport industry. This would not only represent losses for the internal market, but also possible increases in the prices of inputs for the same Mexican citizens.

NAFTA is known as the largest free-trade bloc in the world, which came into force in 1994 to give free passage to the exchange of products between Canada, the United States and Mexico. With the arrival of Donald Trump to the presidency, the criticisms that had always been made to the pact took relevance. Now a restructuring is being negotiated that claims to take profits away from Mexico and recover the jobs that, according to the U.S. president, have been taken from the American citizens by the trade deficit caused by the NAFTA.

 

Latin American Post | Krishna Jaramillo

Translated from "¿Qué consecuencias enfrenta México si acaba con el TLCAN?"

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