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What does NAFTA mean to Mexico?

January 20, 2017

The trade war has already begun. Anger is growing in Mexico, as is resistance to the new economic protectionist policy announced by newly inaugurated US President Donald Trump.

Grenze USA - Mexiko
Image: picture-alliance/dpa/L. W. Smith

"Trump's motto has asserted an anti-Mexico rhetoric," says Günther Maihold, deputy director of the German Institute for International and Security Affairs (SWP). He says that "America first" is a bitter pill for Mexican nationals to swallow, and means huge costs for the country.

Despite the state of shock, resistance is mounting against import duties for Mexican exports or even the US' withdrawal from the free trade agreement NAFTA. Many construction firms, tourism companies and municipal administrations want to show a "symbol of national unity" and plan to boycott automobiles made in the USA.

"We will no longer buy automobiles from Ford for our fleet," announced the governor of the Mexican state of Campeche, Alejandro Moreno Cardenas, in the Mexican newspaper "El Universal." That was his response to the withdrawal of the company's planned investment in the country.

Car-building nation

Signs are pointing to stormy times. "Fear of Trump has scared off potential investors," writes the Mexican columnist Jose Cardenas. "Carrier, Ford, Fiat-Chrysler and General Motors are just sitting back and waiting. They fear draconian customs duties if they insist on keeping part of their production sites in Mexico."

Mexicans fear impact of Trump's border plan (21.11.2016)

Mexico and the USA are still part of a common market. Since 1994, the two countries and Canada have been economically connected by the North American Free Trade Agreement, NAFTA. The controversial agreement triggered a boom in trade between Mexico and the USA but also economic imbalances on both sides. 

Mexiko Ford-Fabrik in Cuautitlan
Mexico's not a prolific car-designing country, but it is becoming a production hubImage: picture alliance/AP Photo/E. Verdugo

That is how NAFTA turned Mexico into a country that produced automobiles and automobile parts for the US market. The staple food in Mexico, corn, however, is no longer cultivated in the country but instead, imported from subsidized North American farms. In the US, the outsourcing of some car production has put a strain on jobs.

Prolific trade partners

According to the World Trade Organization (WTO), 81 percent of Mexican exports are sent to the US and only 2.8 percent to Canada. Of Mexico's imports, 47 percent hail from the US. Washington runs a trade deficit with Mexico, albeit still exporting almost as much to its southern neighbor as it does to Canada - and twice as much as it sends to China.

"There is an abundance of supply chains that Mexico, the USA but also China and other countries incorporate. Abolishing them is only possible at a great expense," warns Mexico expert Günther Maihold from SWP. American consumers will feel the effects when prices rise.

Maihold, who headed the Wilhelm and Alexander Humboldt research course in Mexico for four years, draws a parallel between this development and Brexit.  "Much of what Trump has announced is psychological warfare. If he cancels NAFTA, he must discuss a follow-up agreement. However, this is only conceivable in a timespan of two years."

The stronger one prevails

But it is already foreseeable that Mexico will get the short end of the stick. "NAFTA was always an instrument that affected societies very unevenly," explains Maihold. "The uneven distribution in the context of the agreement is emphasized once again from Trump's position in that he puts himself in the position of the stronger party."

Trump's election could not have come at a worse time for Mexico. The country is in the midst of fighting a hopeless war against drug cartels, ratings for President Enrique Peno Nieto have hit rock bottom and social unrest, strikes and corruption have plunged the state to a political crisis. In light of the uncertain economic scenario, the International Monetary Fund (IMF) has lowered the country's growth forecast.

The mood is bad in Mexico. "The decisive question at the moment is whether our country has leaders who enjoy enough trust to strengthen the domestic market and to make the economy more competitive," writes the columnist Jose Cardenas. His own response to the question is negative. Looking at the upcoming election campaign in 2018 and the quarreling political class, he feels this is utopian thinking.

USA Mexiko Donald Trump Besuch Pressekonferenz
Trump and Pena Nieto could be on better terms at this stageImage: Reuters/H. Romero

Carlos Slim takes a potshot

The Mexican billionaire businessman Carlos Slim sees things differently. In a meeting with Donald Trump last December, he told Trump how he imagined the planned wall between Mexico and the USA. Slim said that the best wall would be to promote well-paid jobs in Mexico so that his compatriots did not have to move to the USA.

On Thursday, Slim took another potshot. He announced that he would establish his own television station for the 35 million Mexicans in the USA. Nuestra Vision would broadcast a mix of sports, news and soap operas from Mexico and would be based on the cultural legacy of its viewers. Slim probably does not only want to earn money with this project in the US.

Infografik Autoindustrie Mexiko ENGLISCH