The Mexican government led by President Enrique Peña Nieto is once again having to respond to uncertainty caused by a stream of soundbites and tweets from US President Donald Trump.
Trump has three buttons to push to make life difficult for Mexico’s almost-lame duck President Peña Nieto. They are to threaten to leave the North American Free Trade Agreement (Nafta); to keep talking about a frontier wall; and to talk about mass deportations of undocumented Mexicans from the US.
The first two were again very much in evidence this week. On Sunday morning (27 August) the US President tweeted “We are in the Nafta (worst trade deal ever made) renegotiation process with Mexico and Canada. Both being very difficult, may have to terminate”. A subsequent tweet insisted Mexico would pay for his proposed border wall “one way or the other”, and that the barrier was needed because of drug trafficking and Mexico’s high crime rate. He was back on-theme again on 28 August at a White House press conference with visiting Finnish President Sauli Niinistö, when he described the wall as “imperative” and said “We may fund it through the United States but ultimately Mexico will pay”. Earlier, he had threatened to shut-down the US government if congress refuses to give him the funding he wants for the frontier wall.
All of this has been heard before. Exasperated Mexican officials might be best advised to ignore it, but for one critically important factor: the Trump rhetoric has real economic impact (see sidebar). The current Mexican response seems to be taking two main tracks: first, to continue countering Trump’s claims one-by-one and to engage in some public relations counter-diplomacy of its own; and second, to argue that it has, and is actively considering, a ‘Plan B’ to for a post-Nafta future.
In terms of countering Trump’s view of bilateral relations, the Mexican foreign ministry immediately issued a statement saying once more that “in no manner and under no circumstances” would Mexico fund the wall. This was, the statement said, not a negotiating position but a statement of “sovereignty and national dignity”. It added that drugs and arms trafficking across the border was a “shared problem” that had caused thousands of deaths on both sides of the border.
The statement went on to say that Mexico was seeking to renegotiate Nafta in a “serious and constructive” way, but pointedly added that it would not conduct the renegotiation through social media. The foreign ministry also offered help and cooperation to the US in the wake of tropical storm Harvey which had caused unprecedented flooding in Houston and other areas of Texas. The ministry said that such assistance should always be offered between good neighbours.
The economy minister, Ildefonso Guajardo, said the Nafta talks were proving to be a rollercoaster and that Mexico was “analysing a scenario with no Nafta”. Earlier in August Guajardo told Reuters news agency that his government was working on a ‘Plan B’. While not detailed, this alternative appears to consist of a number of elements. One is the belief that even without Nafta, Mexico may be able to continue benefiting from trade with the US, if it is conducted on World Trade Organisation (WTO) terms. A number of local economists are moving round to this point of view. Andrés Rozental, a former Mexican deputy foreign minister, has commented, “If we have to go to WTO tariffs, for us it is relatively straightforward”.
A second thought is that even though Mexico is currently highly dependent on the US, which takes over 80% of its exports, in the medium to longer term meaningful trade diversification is possible. Trade talks with Brazil are being held this week (Brazil could replace the US as a source of Mexican grain imports). Mexico is also interested in refloating the Trans-Pacific Partnership (TPP) trade deal, from which the US withdrew right at the start of the Trump presidency.
But perhaps the clearest political sign of Mexico’s interest in a ‘Plan B’ was the announcement that during the second round of Nafta talks in Mexico City at the beginning of September, President Peña Nieto aims to be out of town, paying a visit to China to discuss trade and investment deals. He is due to meet Chinese President Xi Jinping and take part in a summit of the BRICS emerging economies. During the visit he will meet the chief executive of Alibaba, the China based e-commerce platform, to discuss the potential for it to carry Mexican goods and services.
China was not part of the TPP discussions and in the long term favours an alternative, the Free Trade Area of Asia Pacific (FTAAP). As a building block towards the FTAAP, China has been pushing for a Regional Comprehensive Economic Partnership (RCEP) which would include 10 south east Asian countries, Australia, Japan, South Korea and New Zealand, but not the US. Mexico may find that moving towards closer cooperation with the emerging RCEP/FTAAP will help bolster its negotiating position.
- Impact of Trump remarks
The latest tweets by President Trump led the peso to weaken against the US dollar; there was also a small drop in share prices on the Mexican stock exchange, the BMV. Despite the recent resilience of both the Mexican economy and the national currency, the combination of an uncertain Nafta negotiation and the upcoming Mexican presidential and congressional elections in mid-2018 could further rattle investors and erode business confidence.