Mexico Can Handle Trump Just Fine
The country’s greatest obstacles are close to home, not north of the border.
MEXICO CITY — On the streets of Mexico’s capital, there is visible resistance to U.S. President Donald Trump and his fiery rhetoric on trade, immigration, and border security. At the construction site of a new skyscraper next to the U.S. Embassy, a Mexican flag flies proudly hundreds of feet in the air. Anti-Trump graffiti on the city’s rough outskirts takes an invariably humorous tone, portraying Mexico’s supposed nemesis as halfway between clown and cartoon supervillain.
But the reality is that the overwhelming mood south of the border has been one of uncertainty rather than despair. Mexican citizens hear the ubiquitous warnings about the dire consequences of Trump’s protectionism on the Mexican economy, for example, but given the sluggish growth and limited opportunity they’ve faced for years, they see no reason to panic. Appeals by Mexican academics and NGOs to organize marches and boycotts against the United States have mostly crowded one another out. There is a growing sense that the threat from north of the border may have been exaggerated.
There was, to be sure, a palpable sense of fear in the immediate aftermath of Trump’s victory, as the value of the country’s currency plummeted and its government floundered on how best to respond to his bullying approach. Mexican President Enrique Peña Nieto, of the center-left Institutional Revolutionary Party (PRI) — whose credibility at home had already been weakened by mediocre growth, rising crime, and a series of high-profile corruption and human rights scandals — appeared to lack a cohesive strategy on how to respond to Trump’s Twitter diplomacy, eventually canceling an official visit to Washington after repeated jibes.
“At the outset, there was a clear vacuum of leadership at the top of the administration, which in reality had been evident for some time, and the Mexican government looked weak and indecisive in the face of Trump,” Alberto Fernández, a Mexican political scientist at the New School in New York, told Foreign Policy.
Yet signs have emerged that Mexico will overcome the problems posed by Trump. Gung-ho claims by the U.S. president that Mexico would somehow pay for his much-touted border wall were always a pipe dream, and the White House now effectively admits as much. While Mexico will undoubtedly struggle to integrate hundreds of thousands of deportees as the United States cracks down on illegal immigration, Trump’s policy is largely a continuation of the record mass removals under former President Barack Obama, and Mexico is moving to provide unprecedented assistance to returnees.
Most importantly for the Mexican economy, the Trump administration appears to be softening its stance on NAFTA, the landmark trilateral trade pact signed by Mexico, the United States, and Canada in 1992. Given that nearly 80 percent of Mexico’s exports head to the United States, Trump’s threats to radically reform the agreement or even withdraw America completely led analysts to fear the worst. Yet the sheer interdependence of the two economies meant Trump’s logic was always dubious.
On March 15, Peter Navarro, head of the newly created White House National Trade Council, allayed fears that the United States would seek to radically alter or even withdraw from NAFTA, pointing to reform of the rule of origin dimension of the treaty — which stipulates the required number of locally produced inputs necessary for products to qualify for NAFTA benefits — as the key to satisfying both parties. “We have a tremendous opportunity, with Mexico in particular, to use higher rules of origin to develop a mutually beneficial regional powerhouse where workers and manufacturers on both sides of the border will benefit enormously,” Navarro told reporters. “It’s just as much in their interests as it is in [ours].”
A draft proposal for revisions to NAFTA that the U.S. trade representative’s office has been pitching to Congress seeks modest changes, not drastic ones, the Wall Street Journal reported Thursday.
“I can’t imagine any modification [to NAFTA] that would be harmful to Mexico,” Macario Schettino, an economist at the Monterrey Institute of Technology in Mexico City, told FP. “If they amplify the rules of origin, for example, Mexico will receive more investment.”
“In every chapter of the agreement in which we’re at a disadvantage — such as energy and telecommunications — Mexico has already pushed ahead with reforms,” Schettino said. “If the U.S. still insists on raising tariffs, Mexico would be better to abandon the agreement. However, I don’t believe that is in the U.S. interest.”
The Mexican peso has rebounded to its strongest position in months amid increasingly conciliatory rhetoric from Washington and the defeat of Trump’s health care agenda, which has weakened him more generally. Yet it would be a mistake to ignore the contribution of Mexican Foreign Minister Luis Videgaray, a Massachusetts Institute of Technology-educated economist and former finance minister whom Trump’s team reportedly respects greatly and whose emergency appointment in January coincided with a shift in tone by U.S. officials.
“I think Videgaray has been smart and managed to steer the discussion away from the strident declarations of Trump,” Fernández said. “It’s very likely that this diplomacy is being supported directly or indirectly by interests that would be affected if the U.S. were to abruptly withdraw from NAFTA, such as agricultural producers and business leaders in the border region, many of whom are Republican constituents.”
In many ways, the initial panic in Mexico said more about long-standing insecurities domestically than it did the whims of the U.S. president. The country’s economy, long tipped to finally achieve its potential, has continued to underachieve in recent years. Furthermore, the Trump effect has set the stage for what is sure to be a contentious 2018 presidential race, in which the center-right National Action Party and the left-leaning National Regeneration Movement will be the main challengers to Peña Nieto’s PRI (Peña Nieto himself is barred from running by term limits). National unity is likely to be a key theme in the race, as will the idea that Mexico needs to forge a new economic consensus, with less dependence on exports.
The concept of “Mexico’s moment,” the point at which the second-largest economy in Latin America finally takes off, has become a cruel cliché over the past two decades. After transitioning from a largely state-driven economy to a market-led one in the 1980s and 1990s, Mexico became a poster child for globalization, signing trade agreements with nearly 50 partners. At the same time, a long-awaited political transition in which one-party hegemony gave way to a competitive multiparty democracy only increased the sense that Mexico was destined to enter the 2lst century with a bang. Yet the reality is that annual GDP growth has averaged just 0.6 percent since NAFTA was implemented in 1994, while 46.2 percent of the Mexican population continues to linger in poverty, despite the presence of a growing middle class.
The reasons for this are multiple, from low government tax revenues and a lack of investment in innovation to a highly dysfunctional education system and troublingly weak rule of law. Although his current unpopularity wouldn’t suggest it, Peña Nieto, upon taking office in 2012, spearheaded a series of major reforms to public education, the energy sector, labor laws, and other key areas of the economy. His leadership in securing the “Pact for Mexico,” a cross-party alliance that produced the reforms, was widely praised internationally, yet thus far too few Mexicans have seen the benefits.
“These reforms represent the real watershed for Mexico, not anything Trump is doing,” Schettino said. “They are already having a positive impact — but only in ‘modern’ Mexico, which lies between the north of Mexico City and the [U.S.] border. In central Mexico, the mentality is very negative towards globalization. In the south, frankly, they live in another century.”
The reality is that Mexico is perhaps even more politically and socially divided than the United States. According to Schettino, north of the border there is at least a fundamental commitment to the rule of law as the key to democratic governance. In Mexico, recent changes to the public education system in the country’s impoverished south have been virtually impossible to implement because of union protests; state governors continue to operate above the law; and certain regions of the country remain wracked by drug violence.
“Mexico has many problems to address, but the most relevant of all is institutional: In Mexico, laws are not complied with,” Schettino said. “It’s complicated because resolving the matter isn’t simply a case of making a decision on the matter.”
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