24 June 2019

Highlights

  • The daily cross-border trade between the two countries is estimated at US$1.7 billion. Any stopping of this would have devastating consequences for Mexico
  • AMLO will be able to positively (although not easily) manage the relationship with President Trump

On 20 June 2019, Mexico approved the United States-Mexico-Canada Agreement (USMCA, known in Spanish as T-MEC), replacing NAFTA, the free trade agreement between the three big Northern America nations, with one hundred and fourteen favorable votes, three contrary and one abstaining. Mexico has been the first among the three countries, to approve it (Canada will approve it at the end of June, while in relation to the United States the procedure will be much more cumbersome and even plagued by uncertainty).

On 7 June 2019, after President Trump had threatened Mexico with imposing 5% retaliatory duties on all products which Mexico exports to the United States, and a week of negotiation in Washington DC, Andrés Manuel López Obrador’s (AMLO) government clinched a deal with its richer Northern neighbor upon which Mexico pledged to register and control all people entering its territory as well as to deploy the National Guard on its Southern frontier. Although from many parts it has been said that this pact does not really add anything new and it is more likely something given to President Trump to be marketable to his own electorate (to show that he is really doing something concrete to stop illegal immigration), it has prompted much criticism within the Movimiento Regeneración Nacional (Morena), the party of AMLO. For the moment, Mexico avoided the so-called “safe third country principle” upon which the United States could reject a person’s asylum application if it had already been granted protection by Mexico as, under this principle, Mexico would have been considered a safe third country in any case. However, President Trump threatened to impose the safe third country principle, should the Mexican measures not prove to be effective.

The Broader Scenario

The daily cross-border trade between the two countries is estimated at US$1.7 billion. Any stopping or even hindering of this would have major consequences for both economies. However, the financial impact on Mexico would be devastating and comparatively much more significant than the impact on the US economy. In 2015, Mexican exports to the United States totaled US$295 billion. That year, the US goods trade deficit with Mexico was US$58 billion. In January 2019, Mexico reported a record-high trade surplus of $1.8 billion in December 2018, due mainly to a 9% increase in exports to the United States. AMLO’s government showed a conciliatory tone and effectively implemented some of the measures required by the Trump administration to halt the flow of migrants from Central America but, like everywhere in the world, illegal immigration is a difficult phenomenon to control and this issue will cyclically re-emerge as a major element of tension between the AMLO and Trump administrations.

Risk Analysis

The leftist AMLO is definitively a skilled and highly capable politician who is governing Mexico on the basis on an undisputed democratic 6-year mandate until 2024, with also a strong sway over the Union Congress. However, he is confronting the most conservative and unpredictable US president in the past few years, who during his political campaign used the anti-immigration and anti-Mexico argument as a cornerstone of his political agenda. Moreover, the international economy is clearly indicating that the world is on the brink of a recession, while there are increasing geopolitical tensions between the United States and China, as well as with Russia. The relationship between AMLO and President Trump does not seem to be smooth nor will it be, but given AMLO’s superior political instincts, we believe that he will be able to positively (although not easily) manage the relationship with President Trump – something which other international leaders seem not to have been able to do.

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