Trumping Mexico: Trade and Turmoil
Any changes to NAFTA, which comprises 37.5 percent of Mexico’s GDP, would have a significant impact on the country’s agriculture and manufacturing industries.
A new era of bilateral relations under the Trump administration is likely to further compound Mexico’s economic woes. Despite periodic signs of an impending economic boom, the Mexican economy has consistently failed to live up to expectations, growing at half the average of emerging economies since 1994. Even Peña Nieto’s long-awaited economic reforms to privatise the oil and gas sectors have struggled to revitalise the industry, in part undermined by lower global oil prices. At 1.7 percent, Mexico’s GDP growth this year is anticipated to be the lowest since the 2007- 2008 financial crisis. Understandably then, the prospect of dismantling NAFTA poses a serious threat to the country’s economy. Approximately 80 percent of Mexico’s exports go to the US, and trade between the two countries reached USD 500 billion in 2015. The industries most likely to be impacted by Trump’s protectionist stance are the automobile, manufacturing, and agriculture sectors.
Apart from their effect on Mexico’s economic stability, Trump’s proposed policy changes are also shaking up the political establishment south of the border. Peña Nieto’s haphazard and inconsistent responses to Trump’s provocations have seen his approval ratings dive to 12 percent, the lowest of any Mexican president since polls first started being regularly taken in 1994. Opposition politicians on all sides have consistently criticised Peña Nieto, calling for the president to take a firmer stance against Trump’s alleged bullying. Seizing upon this growing tide of resentment, AMLO has led several antiTrump rallies in Mexico. Although his tone with Trump has since hardened, it appears to be too late for Peña Nieto and the ruling Partido Revolucionario Institucional (PRI).
Peña Nieto’s failure to respond to Trump’s threats has contributed to the PRI’s steady decline in popularity. Having governed Mexico for most of the twentieth century, the PRI has lost significant support due to multiple high-level corruption scandals, a sagging economy, and its failure to effectively combat violent crime. Ahead of gubernatorial elections in several states in June 2017 and presidential elections in July 2018, a number of opposition parties and political figures are looking to capitalise on the PRI’s weakness. None more so than AMLO, an anti-establishment figure whose humble background and anti-corruption stance resonates with Mexico’s poor and disenfranchised, with his firm anti-Trump stance also serving as a rallying point for other Mexican socio-economic classes. However, with the presidential elections still over a year away, it remains to be seen whether AMLO can capitalise on domestic frustration and anger. Although AMLO’s party, Movimiento Regeneración Nacional (Morena), scored major gains in last year’s round of state elections, its support levels are still heavily overshadowed by the political clout held by the PRI, as well as the Partido Acción Nacional (PAN) and Partido Revolucionario Democrático (PRD), the main opposition parties. Realistically, even if AMLO were to win next year’s presidential elections, he is unlikely to hold enough support in Congress to push roll back the PRI’s reforms. Though he could still stifle foreign investment in the energy sector by increasing bureaucratic controls and environmental regulations as well as meddling with the fiscal terms of exploration and production contracts.
It also remains to be seen whether Trump will follow through on his promises to overhaul NAFTA, but his threats to impose a crippling border tax on companies have, among other factors, already scared away billions in potential investment in Mexico. In particular, any rollback in investments in Mexico’s car industry, which employs almost 900,000 workers across the country, would push up unemployment rates. Similarly, any changes to NAFTA, which comprises 37.5 percent of Mexico’s GDP, would have a significant impact on the country’s agriculture and manufacturing industries. Rising unemployment and an economic recession would only fuel further social unrest, a scenario likely to stoke a resurgence of leftist populism. As such, even if AMLO does not win next year’s elections, Trump’s presidency has already fundamentally shaken up US-Mexico relations and Mexico’s political status quo.