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Mexico Braces for the Possible Collapse of Nafta Mexico Braces for the Possible Collapse of Nafta
(about 1 hour later)
MEXICO CITY — Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy will adapt without the deal that has guided relations between the neighbors for a quarter-century.MEXICO CITY — Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy will adapt without the deal that has guided relations between the neighbors for a quarter-century.
Since President Trump’s election victory, Mexico has put negotiations for new or updated trade deals with other countries on a fast track, seeking markets for its exports and new suppliers.Since President Trump’s election victory, Mexico has put negotiations for new or updated trade deals with other countries on a fast track, seeking markets for its exports and new suppliers.
President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.
Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State.Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State.
“There are ways to adapt to contain the impact,” said Ildefonso Guajardo Villarreal, the economy minister in a televised interview, adding that his ministry has begun to analyze the effect on different parts of the economy if the United States were to leave the accord. “There are ways to adapt to contain the impact,” said Ildefonso Guajardo Villarreal, the economy minister in a televised interview.
And Moisés R. Kalach, who leads the Mexican business delegation to the Nafta talks, said companies were talking to the government about how to adapt. “What do we do to remain competitive and to continue developing our manufacturing and our agriculture?” he said.And Moisés R. Kalach, who leads the Mexican business delegation to the Nafta talks, said companies were talking to the government about how to adapt. “What do we do to remain competitive and to continue developing our manufacturing and our agriculture?” he said.
But the fallout in Mexico could have ripple effects that extend well beyond trade. To many in Mexico, a decision by the United States to leave Nafta would be the culmination of Mr. Trump’s campaign insults, and could provoke nationalist sentiments affecting Mexico’s presidential election next year. But the fallout in Mexico could have ripple effects that extend well beyond trade. A United States exit from Nafta could provoke nationalist sentiments affecting Mexico’s presidential election next year.
Negotiators for Mexico, the United States and Canada last week began a fourth round of talks originally intended to modernize the deal, which underpins trade and investment among the three countries and has reshaped Mexico’s economy.Negotiators for Mexico, the United States and Canada last week began a fourth round of talks originally intended to modernize the deal, which underpins trade and investment among the three countries and has reshaped Mexico’s economy.
But Washington has floated protectionist proposals that both Mexico and Canada have said they will not accept, raising fears that the discussions could break down and hand Mr. Trump a reason to make good on his repeated promises to withdraw from Nafta. But Washington has floated protectionist proposals that both Mexico and Canada have said they will not accept, handing Mr. Trump a reason to make good on his repeated promises to withdraw.
Foreign Minister Luis Videgaray warned legislators last week that Mexico was prepared to exit the talks rather than accept a harmful deal.Foreign Minister Luis Videgaray warned legislators last week that Mexico was prepared to exit the talks rather than accept a harmful deal.
“It should be clear to everybody that Mexico is much bigger than the North American Free Trade Agreement, and we must be prepared for the different scenarios that could result from this negotiation,” he said.
“We will only continue in this process and in this treaty if it meets the national interest,” he added.
Prime Minister Justin Trudeau of Canada paid a two-day official visit to Mexico last week that symbolized the two countries’ solidarity on Nafta against their larger neighbor.
For all of Mr. Trump’s heated comments, describing Nafta as the “worst trade deal ever made,” the effect of the accord has been exponentially larger on Mexico than on the United States, where the economy is about 18 times as large as the economy of its southern neighbor.For all of Mr. Trump’s heated comments, describing Nafta as the “worst trade deal ever made,” the effect of the accord has been exponentially larger on Mexico than on the United States, where the economy is about 18 times as large as the economy of its southern neighbor.
Mexico has transformed from an inward-looking oil producer to a manufacturing powerhouse, its factories rolling out cars, computers and machinery for export. Mexican tomatoes, avocados and broccoli crowd the aisles of American supermarkets. Newer industries like aerospace and medical equipment are thriving.Mexico has transformed from an inward-looking oil producer to a manufacturing powerhouse, its factories rolling out cars, computers and machinery for export. Mexican tomatoes, avocados and broccoli crowd the aisles of American supermarkets. Newer industries like aerospace and medical equipment are thriving.
Last year, Mexican exports amounted to $374 billion, with more than 80 percent of that going to the United States.Last year, Mexican exports amounted to $374 billion, with more than 80 percent of that going to the United States.
But Mexico’s broader performance under Nafta has been a disappointment. The domestic economy never kept pace with the success of exports, and the gap between the export-driven north and the rural south has widened. Real wages have stagnated, and imports of corn and other food products drove almost two million farmers off their land. But Mexico’s broader performance under Nafta has been a disappointment. The domestic economy never kept pace with the success of exports, and the gap between the export-driven north and the rural south has widened.
Now Mexico faces the possibility of a shock to the most dynamic part of its economy.Now Mexico faces the possibility of a shock to the most dynamic part of its economy.
The collapse of Nafta threatens to reduce the volume of exports to the United States by removing their duty-free access and to halt investment by companies that establish Mexican factories to make products for the American market.The collapse of Nafta threatens to reduce the volume of exports to the United States by removing their duty-free access and to halt investment by companies that establish Mexican factories to make products for the American market.
Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open. Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open. Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.
The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.
“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments.“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments.
“But,” he added, “there will be uncertainty in the short term.”“But,” he added, “there will be uncertainty in the short term.”
Mr. Guajardo, the economic minister, said Mexican-made light trucks, for example, would face a 25 percent duty in the United States. Converting factories to the production of cars, which would be subject to the much lower duty, could be a response.Mr. Guajardo, the economic minister, said Mexican-made light trucks, for example, would face a 25 percent duty in the United States. Converting factories to the production of cars, which would be subject to the much lower duty, could be a response.
Even before Nafta, assembly plants known as maquiladoras imported parts duty free and sent the finished product back to the United States. The end of Nafta “may not be an absolute game changer,” said Manuel Padrón-Castillo, a trade lawyer at Baker McKenzie in Ciudad Juárez, across the border from El Paso, Tex.Even before Nafta, assembly plants known as maquiladoras imported parts duty free and sent the finished product back to the United States. The end of Nafta “may not be an absolute game changer,” said Manuel Padrón-Castillo, a trade lawyer at Baker McKenzie in Ciudad Juárez, across the border from El Paso, Tex.
“If we don’t have Nafta, are we going back to the same old rules?” he continued. “The answer is unknown.”
Over the longer term, other analysts said, an American withdrawal from Nafta “would call into question the viability of Mexico as an outsourcing destination,” said Dan Ciuriak, a trade expert at the Center for International Governance Innovation in Waterloo, Ontario.Over the longer term, other analysts said, an American withdrawal from Nafta “would call into question the viability of Mexico as an outsourcing destination,” said Dan Ciuriak, a trade expert at the Center for International Governance Innovation in Waterloo, Ontario.
Under Nafta, a complex network has evolved in which raw materials and parts move easily across borders, often several times, to be assembled into larger pieces and finally into a finished product.Under Nafta, a complex network has evolved in which raw materials and parts move easily across borders, often several times, to be assembled into larger pieces and finally into a finished product.
Without Nafta, even small duties would add up in such a manufacturing system. “For passenger vehicles and parts, the buildup could be quite high,” Mr. Ciuriak said. “The deeply integrated sectors would face tremendous disruption.” Without Nafta, even small duties would add up in such a manufacturing system. “The deeply integrated sectors would face tremendous disruption,” Mr. Ciuriak said.
If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.
The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.
Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead.Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead.
A withdrawal from Nafta could also have far-reaching political consequences.A withdrawal from Nafta could also have far-reaching political consequences.
It “will be interpreted as a rejection of Mexico and Mexicanness and that will complicate the politics of the relationship with the United States,” said Mr. de la Calle, the former trade negotiator. “The political cost of collaboration with the U.S. becomes higher.” It “will be interpreted as a rejection of Mexico and Mexicanness and that will complicate the politics of the relationship with the United States,” said Mr. de la Calle, the former trade negotiator.
A collapse of Nafta is likely to be a liability for Mexico’s centrist candidates in next year’s presidential election; the front-runner now is Andrés Manuel López Obrador, a leftist populist, although he has not yet made an issue of Mexico’s relationship with the United States.A collapse of Nafta is likely to be a liability for Mexico’s centrist candidates in next year’s presidential election; the front-runner now is Andrés Manuel López Obrador, a leftist populist, although he has not yet made an issue of Mexico’s relationship with the United States.
Juan Francisco Torres Landa, a trade lawyer with Hogan Lovells in Mexico City, warned that Mr. Trump had opened “a Pandora’s box.”Juan Francisco Torres Landa, a trade lawyer with Hogan Lovells in Mexico City, warned that Mr. Trump had opened “a Pandora’s box.”
“When I was in elementary school,” he said, “we learned: ‘Watch out for the Americans. They invaded us a couple of times, they took half our territory.’ ”“When I was in elementary school,” he said, “we learned: ‘Watch out for the Americans. They invaded us a couple of times, they took half our territory.’ ”
All that had been forgotten, he said, as Mexico and the United States moved closer under Nafta. “It’s actually very refreshing that in spite of all that negative background and noise” we can live as good neighbors, Mr. Torres Landa said. All that had been forgotten, he said, as Mexico and the United States moved closer under Nafta.
But Mexicans’ historical wariness may revive in the presidential campaign, he warned. “Somebody may say the enemy is Trump or the U.S., and I am the guy who can stand up to this.”But Mexicans’ historical wariness may revive in the presidential campaign, he warned. “Somebody may say the enemy is Trump or the U.S., and I am the guy who can stand up to this.”