Thursday, August 24, 2017

Mexico Fights Back

President Trump has continued to use tough rhetoric on trade with Mexico, saying at a rally in Phoenix on Tuesday that he will “probably” terminate NAFTA because he doesn’t think a deal can be made. Whether he really has the legal power to do that is a subject I’ll turn to next week, but for now, it’s important to remember one thing:

If Trump hits Mexico, Mexico will hit back, and it has tools to do so.

Hitting the U.S. in the Corn Belt

For example, Mexican legislators have introduced a measure that would use trade as a weapon against the U.S. The measure would reduce Mexican purchases of U.S. corn by 60 percent in the first year, 80 percent in the second year, and 100 percent in the third year.

In Mexico, corn imports from the U.S. are a hot-button issue. Many Mexicans blame NAFTA for the decline of domestic corn prices and the resulting economically-driven migration to the U.S. in the 1990s and 2000s (although economic analyses like this one and this one suggest that the story is more complex).

But even if shutting out U.S. corn would help the Mexican rural economy, it would devastate the Midwestern United States. Since Mexico is the second-largest market for U.S. corn, accounting for 25 percent of U.S. corn exports, the measure would have a substantial impact on U.S. agricultural imports. That threat would not be lost on Trump voters in the Corn Belt.

The measure may not pass, but its author, Mexican Senator Armando Ríos Piter, has made his point: Mexico is not a passive player in the renegotiation of NAFTA.

Remembering the Alamo, South of the Rio Grande

Ríos Piter, who plans to run for president of Mexico in the next election, has made another aggressive claim: The senator told the host of Boston’s NPR station that Mexico should consider making claims to land that changed hands in the Mexican American War. “What I said is that Mexico should be analyzing every treaty we have with the United States. The thing is: Why should we continue collaborating with the United States, with this administration especially?”

Getting Mexico to swallow a NAFTA deal that shifts the balance toward U.S. interests would not be simple. Mexican Economy Minister, Ildefonso Guajardo Villarreal, told CNN Money that Mexican officials could not accept a new NAFTA that is worse than the current deal because the government’s party does not have a majority of the multi-party Mexican Congress. Mexico’s Congress would have to approve of any changes made in the agreement, which would require a broad coalition among Mexican political interests in support of the new deal.

Mexican Nationalism on the Rise

Perhaps Trump doesn’t care and still hopes to “rip up” NAFTA, despite the pressure from agricultural interests. The current front-runner for in next year’s Mexican presidential election, Andrés Manuel López Obrador, might be just fine with that.

López Obrador, the former mayor of Mexico City, has been an outspoken opponent of NAFTA and all other measures to liberalize the Mexican economy. A chapter from his most recent book is titled, “Privatization, Synonym for Robbery.” That means the Mexican market for U.S. products might go away for a long time.

In another book responding to the election of Donald Trump, López Obrador describes the U.S. government by the Spanish idiom “lamp in the street, darkness in the home,” referring to one who appears good to the outside world but is revealed to be bad by his conduct in his own home or family.

Nationalism breeds nationalism and protectionism breeds protectionism. Despite its weaker economy (or perhaps because of it), Mexican politicians are unlikely to accept one-sided demands from the Trump Administration. The consequences of a trade and culture war with a neighbor with whom we share a 2,000-mile border could be costly to Trump supporters as well as opponents.   

http://lawprofessors.typepad.com/inttradelaw/2017/08/mexico-fights-back.html

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