Mexico prepares for tough negotiations with Trump’s America

Posted on November 10, 2016

Mexico’s President Enrique Peña Nieto will be thankful he rolled out the red carpet for Donald Trump when he invited him to visit in August. Tough negotiations — especially on trade between the neighbours and commercial partners — lie ahead.

Ildefonso Guajardo, Mexico’s seasoned economy minister and former North American Free Trade Agreement negotiator, will be in the eye of that storm. Faced with the prospect of a trade war if Mr Trump keeps his campaign pledge to slap tariffs on cars made by US companies in Mexico and exported to the US, for example, he admits “we cannot bet on anything”. 

But the government is, for now, politely overlooking the way Mr Trump branded Mexican immigrants rapists and criminals; how he has vowed to barricade the border and make Mexicans pay by threatening to stop the annual flow of $24bn in remittances; and his plans to deport immigrants. 

“We trust the US. We trust its institutions and so we trust who is going to assume the leadership,” Mr Guajardo said. Mr Peña Nieto, who attracted ridicule in August for failing to take Mr Trump to task in public, now hails a new chapter in US-Mexican relations under Mr Trump as “a big opportunity”. 

Congratulating the property magnate on his victory, he made no mention of Nafta but José Antonio Meade, finance minister, and Agustín Carstens, central bank governor, told bankers at a private meeting that was the government’s main concern now.

The stakes for Mexico were illustrated on Thursday when the Ministry of Finance announced a reduction in its auction of longer-term debt because of “an increase in volatility” due to the US election.

Mexico hopes to find common ground now that Mr Trump is talking of renegotiating, not scrapping, the 22-year-old trade pact and some Nafta elements have already essentially been renegotiated under the Trans-Pacific Partnership, said one banker who was at the meeting. 

It comes down to practicalities and Mr Trump did, after all, write The Art of the Deal. Mr Guajardo noted that US fructose, corn and pork exporters would howl if Mexico stopped buying — Mexico is the US’s second-biggest export market, worth some $200bn. Nevertheless, “there are things we can improve together,” he says.

The trade pact is a vital engine of growth. Mexico and the US have built integrated supply chains to support the automotive, aerospace and electronics manufacturing industries, creating millions of jobs, and in many ways, it is about the only institution in Mexico that really works. 

But it relies, in part, on the cheap labour on offer in Mexico that Mr Trump says is undercutting US jobs. “Mexico lacks leverage in negotiations with the US over trade, and so remains at the mercy of Trump’s impulses,” Eurasia Group said in a note to clients. Mexico relies on the US as a market for 80 per cent of its exports and for 60 per cent of its imports, but with Mr Peña Nieto’s popularity ratings at historic lows, he may be forced to accommodate Mr Trump’s demands “without meaningful retaliation”, Eurasia added.

Nevertheless, Mexico is an important security buffer for the US and an ally in fighting illegal immigration, which has dwindled as Nafta has flourished. “Every year there have been some 300,000 Central American migrants heading north through Mexico to the US and Mexico has stopped about 150,000 of them. If US-Mexican relations become tumultuous, Mexico might be more reluctant to do that,” noted Shannon O’Neil at the Council on Foreign Relations. 

President Enrique Peña Nieto with presidential candidate Donald Trump. Mexico is in the frontline of Mr Trump’s protectionist plans to bring companies ‘home’ © AP

Mexico’s job, in meetings with the US transition team and between the president and Mr Trump himself, will be to drive home the mutual benefits of being neighbours, allies and partners.

“It will be tough. But there are many captains of industry and businessmen in Trump’s crowd. He may hate Mexicans but Nafta is good for business,” said Gabriel Guerra, a consultant and former diplomat and government spokesman. “I don’t think the Trump team will be kamikaze.” 

Mr Trump may also appreciate the sacrifices Mr Peña Nieto has made for him: he refused to admit it was a mistake to invite him and fired his closest ally, then finance minister Luis Videgaray, who orchestrated the meeting. 

But Mr Peña Nieto is under pressure to deliver domestically, or risk opening the door to populism in Mexico, too. Maverick leftist Andrés Manuel López Obrador commands about 25 per cent support in polls amid a very fragmented field.

“Those very angry, very anti-establishment people who are willing to try anything other than what they have now may well spill over … in Mexico,” said Andrés Rozental, a former deputy foreign minister.

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