The most recent reminders of Trump’s anti-Mexico stance came in early January, when the president-elect used Twitter to weigh in on the involvement of GM and Ford Motor in Mexico’s auto industry. Ford had earlier decided to build a $1.6 billion plant in Mexico. After a Trump tweet, Ford’s management backed down on that decision and announced that it was not going ahead in Mexico and would instead opt to make a $700 million investment in production facilities in Michigan. Trump also threatened Japan’s Toyota with a “big border tax” if it attempted to export its Corollas to the United States from a planned new plant in Mexico.
The loss of the potential investment from Ford and related jobs did not go over well in Mexico. However, it did prompt Pena Nieto to appoint former finance minister Luis Videgaray, the man who organized the botched Trump visit, as foreign minister, with a mandate “to accelerate dialogue and contacts so that from the first day the bases for building a constructive work relationship can be established.” Those last words came from the Mexican president, who has taken a concerned, yet measured response to the storm that appears to be heading his way.
As the campaign begins in earnest in the summer many Mexicans are likely to look to Lopez Obrador to represent them against Trump as his political campaign is likely to be one closely resembling “Mexico first.” Both men have similar personas in that they have confrontational styles, are ill-at-ease with globalization and possess dismissive attitudes vis-à-vis existing institutions (the establishment). It has been argued that Trump’s aggressive stance toward Mexico would make Mexicans more receptive to an anti-globalization and nationalistic candidate, even if they are not as far to the left as Lopez Obrador with some of his economic policies.
The mix of economic development issues and U.S.-Mexican relations does not come at a good time for the Mexican economy. The last several governments have implemented structural reforms that overhauled the economy, regained lost trade and investment from China and developed a more modern industrial sector. More recently, there are signs of improvements in productivity growth. Furthermore, trade openness, foreign direct investment, integration into global value chains and incentives to introduce innovative technologies have boosted selected activities, such as auto production.
But much is more is needed. As observed by the OECD’s November 2016 Economic Outlook, “Further reforms are needed to address the misallocation of productive resources, due to overly stringent local regulations, weak legal institutions, high rates of corruption and insufficient financial inclusion. Reforms should also aim at eradicating extreme poverty, reducing income inequality and informality, raising female participation, and encouraging more responsible business practices.”
It is against the backdrop of Mexico’s economic gains that the presidential race in 2018 will be fought. The Trump administration’s trade policies, which seek to keep jobs in the United States, threaten to take current and future jobs away from Mexico. While Trump was able to gain political followers in the U.S. “rust belt,” any Mexican politician capable of taking Mexico City will make the same promises of keeping jobs in Mexico.
While an updating of NAFTA is probably a good idea, such a task should be approached with a view as to how all three partners will benefit. A unilateral scrapping of NAFTA would certainly fuel animosity between the United States and its trade partners, and in Mexico give a boost to Lopez Obrador’s chances of putting a populist into the presidency for the first time in several decades.
The upcoming Mexican presidential election will be fought over economic reasons and putting “Mexico first” will be front and center. This has broader implications for relations with the rest of Latin America and the Caribbean; some countries might find that the new age of economic nationalism redounds to their benefit, but more forceful protectionist measures out of Washington, together with a tougher stance on immigration, are likely to embolden other nationalist and anti-U.S. movements throughout the region. The latter is not in the U.S. national interest, especially as it could see the loss of U.S. jobs and markets or the spread of more hard left alternatives to the struggling democracies that hold sway over the region. Depending on how U.S.-Mexican relations are handled, “America first” could well lead to a “Mexico first” home-made populism.
Scott B. MacDonald is a Senior Managing Director at KWR International. The views expressed here are his own and do not necessarily represent those of KWR International.