How Mexico Can Cope With Trump
Trump’s polling figures rose further and further in the days leading up to election day and all Mexico could do was watch in horror, knowing that their worst nightmare was about to come true. The peso tumbled to a record low of 20 to the dollar in the weeks leading up to President Trump’s eventual victory and is indicative of the new hierarchy between the two nations.
“The reality on the ground will catch up to anyone the moment they step into the White House” said Christopher Wilson, deputy director of the Mexican Institute at the Wilson Centre, to the LA Times. “Many of the things he said on the campaign trail will probably have to stay on the campaign trail because of the reality of the interdependence of the US-Mexico relationship. Trump’s inauguration speech, however, didn’t indicate such a change of tack. Rather, it confirmed Mexico’s worst fears, as indicated by the peso which slumped further and further as the proceedings in Washington go underway.
His inaugural address, unlike Kennedy’s or Roosevelt’s, wasn’t a memorable one but it will go down in Mexico’s history books as the speech that initiated the final chapter in a longstanding relationship. Much of the speech was aimed at Mexico, referring to an uncontrolled border failing to protect the US from the “ravages of other countries making [their] products, stealing [their] companies, and destroying [their] jobs.”
On the campaign trail, Trump paraded his desire to rip up NAFTA because it apparently favours Mexican workers over American ones. It is questionable how realistic a move away from NAFTA by the USA is considering how interconnected the symbiotic relationship is. Before the inauguration, sixteen American farm groups penned a letter to the new administration urging him to rethink his stance as the disruption of trade would be devastating for their sector and related industries. Despite this ambivalence, however, the general attitude — especially among manufacturing sectors — is one against NAFTA trade. Now that Trump’s highly nationalist speech has confirmed much of his rhetoric towards globalisation, Mexico is worried. Rightly so.
Just hours after President Trump was elected, one Mexican newspaper ran the headline “A Tremblar” (Time to Tremble). Mexico has benefited hugely from NAFTA however so has the USA which pays lower prices for products as a result of lower worker wages in Mexico. This is something President Trump is prepared to sacrifice, however. Mexico credits much of its growth to NAFTA and the investment that came with it. Since NAFTA’s implementation in 1994, Mexican farm exports to the US has tripled. Hundreds of thousands of car manufacturing jobs have been created in the country and numerous studies have found that the agreement has had a positive effect on consumer prices and worker productivity. There has been a significant move since the mid-nineties away from protectionism to trade liberalisation which has brought with it a degree of prosperity and a stable rate of inflation.
Some Mexican economists have predicted a recession if Trump follows through with his campaign pledges. The tearing up of NAFTA, followed by falling exports and plunging rates of foreign investment, would decimate Mexico. The USA buys 75% of Mexican exports and more than $1 Billion worth of exports crosses into the US every day. Severing this trade link would be like cutting Mexico’s lifeline and would jeopardise half the country’s GDP.
In response to Trump’s inauguration, President Peña Nieto said that “sovereignty, national interest, and protection of Mexicans will guide relations with the new government of the US”. This includes the 35 million Mexicans currently living in the USA who send back a vital injection of cash into the Mexican economy in the form of tax remittances reaching $25 billion per year. Protests are set to take place in Mexico City over the weekend against Trump and his policies, and there is also a sense of betrayal among some Mexicans who feel their president sold out to Trump. Following his election victory, Trump was invited to hold a joint press conference in Mexico and on the eve of the inauguration infamous drug lord El Chapo was extradited to the USA and could therefore not pay for his crimes back in Mexico. The Mexican government denies the timing was anything but a coincidence.
The political establishment in Mexico should be worried; Mexicans will become united by anti-Trump sentiments and populism could very well take hold. The next election is being held in 2018 and by that time the dust will have settled and the situation clearer. Observers are speculating that a nationalist backlash could be voiced in the general election as politicians tap into likely anti-Washington feelings and stand for the dignity of Mexicans.
Although fractional politics in Mexico will be able to find common ground over Trump, making something of it will be hard. If Trump slaps tariffs on imports and renegotiates NAFTA, the fiscal situation in Mexico will worsen still. The current climate is already poor, owing to corruption and low oil prices, with swathes of the country in the hands of organised criminals. Trump will add to the chaos and cause soaring prices, rampant inflation, and a weakening currency.
The worst Mexico could do in retaliation is to start a trade war with the US because it’s highly unlikely it would come out on top. Instead, it should seek to end corruption in order to motivate people to pay taxes towards infrastructure projects in the underdeveloped south, formalise the economy further, and look to trade elsewhere, all with the common motivation of sticking it to Trump. What happens in 2018 at the Mexican elections will be determined by the stance President Trump takes on Mexico, and Mexico’s future depends on its embrace of free trade.
All the people of Mexico can do now, however, is wait.