The main idea of TPP was to augment multinational agreements to compete with superpowers such as China, which was not part of the agreement. However, paradoxically it is now China who could benefit by replacing the USA in TPP. This subsequent reconfiguration has the added potential of polarizing geopolitics in some regions.
This could cause mixed feelings for Mexico. On the one hand, it would allow Mexican imports to enter into new markets, but on the other, it would have to define a clear and objective strategy that differentiates and adds real value to its existing markets, as well as the new ones. This strategy would have to avoid being seen as trying to compete with landmark countries such as China (especially after they join the WTO), in terms of the main competitive advantages on offer, including low currency values and cheap labour, and show that the merits and potential of each of the economies can elevate them both further. They must seek to diversify a market which cooperates and accommodates as much as possible. We must also not forget the trade deficit speeches that played an important part in the US presidential campaign, with the USA having a deficit of 28 Million Dollars with Mexico as of December 2016 (This figure includes intermediate goods, due to the nature of trade relations between the two countries).
Is this the end of our commercial alliance with the US?
The NAFTA region is also being challenged by the renegotiation of its agreement. It is an important moment for Canada, the United States and Mexico, as the first two have stated their intention to continue with their trade agreements, but the latter two have differing views on the benefits of the agreement. This is despite Mexico being the USA’s second largest export market with 211.8 Million Dollars in 2016, and the USA being Mexico’s largest export market with 270.6 Million Dollars in the same year. This is down to the huge integration of production lines in several sectors, such as manufacturing, specifically in the mass consumer goods industry for example.
A possible duty increase of between 20-35% for products passing from Mexico over the northern border may affect different sections of both markets in terms of cost, investment, inflation and employment, hurting both producers and consumers. So, instead of getting involved in a trade war or declaring who the winners or losers are with an emperor-style thumb, should both economies not just see each other as integrated regional production lines that reap each other’s benefits, and consequently become even stronger in the face of other trade blocks? An astute model, which takes into consideration the size and distance of markets to explain bilateral trade patterns was a much better economic explanation for trade agreements, such as NAFTA, than the political model which is being demonstrated at the moment.
One thing for certain is that an interruption in the highly integrated global supply chains such as those in the US and Mexico will affect the interdependence that both countries have. The tariffs on Mexican products are not the answer and will not benefit either country. The past has shown us that these types of protective measures are detrimental for both producers and consumers.
The IMF growth forecast for Mexico has been falling in the last months from 2.4% to 2.1% and most recently to 1.7%. Now is the time to strategically rethink an economic plan that includes trading in both old and new markets, as well as considering the technological, social and political variables in today’s dynamic but uncertain environment.
