“The US voted for a xenophobe and a liar“, “The US voted for the wall and for Donald Trump’s lies” read Mexican headlines the morning after Mexico‘s worse scenario materialized. And these were not the front pages of some leftist-socialist newspapers, but those of the main mainstream business dailies.
As we write, the Mexican peso has lost almost 10% of its value. The Mexican Central Bank and the Treasury Secretary are meeting in the morning of 9 November to decide on the implementation of the financial crisis plan applied in 2008.
It’s no mystery why Mexico is bracing for a remake of the Great Recession scenario: no other country has so much at stake as the United States’ southern neighbor.
From the very first day of his campaign Mr. Trump attacked Mexico and the Mexicans with very harsh words. Mexicans were criminals, rapists and drug dealers, he said. Mexico had stolen American jobs, flooding the US with illegal emigrants and taking advantage of the North American Free-Trade Agreement (NAFTA). He would repeal NAFTA, end birthright citizenship of Mexican children born in the US, deport around 5 million illegal Mexicans and if that were not enough, build “a wall”, a “big, beautiful” wall along the almost 2000 miles of the US-Mexican border.
Even if those pledges turned out to be partially campaign rhetoric, the fact is that the US is Mexico’s main export partner, absorbing 80% of its output.
US imports of goods from Mexico totalled $295 billion in 2015, up 73% from 2005, while imports of Mexican services were an estimated $21.6 billion in 2015, 50.0% greater than 2005 levels, according to US Government data. On all or most of these products, and cars in particular, Trump plans to impose a 35% tariff.
Pivotal to this trade is NAFTA, which Trump believes to be “killing” the US in trade. NAFTA gets mixed reviews in Mexico too from many Mexican workers who, similarly to the American workers who voted for Trump, have experienced the negative side of globalization. Mexican companies also find it hard to compete with the more efficient US companies that thanks to NAFTA can export heavily into the Aztec Tiger.
NAFTA’s purpose, however, was not only to encourage trade between the US, Mexico and Canada, but also to provide incentives to keep outsourced jobs in the Americas, rather than in faraway places overseas.
Before NAFTA took effect in 1994, Mexico’s exports to the US amounted to $39 Billion ; and in 2014, its exports to the US were worth $290 billion (with the plus for the US of a positive trade balance of $182 billion, which Mr. Trump dos not acknowledge publicly).
Mexico’s manufacturers benefited from this export (even if a full 40% of the content of Mexican exports to the US is actually produced in the United States according to the Wilson Center’s Mexico Institute) and from the fresh outsourced manufacturing jobs it created (although their quality is questioned and rightly so in many cases, such as those made in the maquilas). Much outsourced production was moved back to the Americas from China.
That came on top of the traditional exports of agricultural products, resources and labour. All and all, Mexico’s exports to the US are up 638% from 1993 (pre-NAFTA).
The economic impact of a planned NAFTA review could be huge, already just in terms of it blurring the economic outlook, generating instability and thus severekt damaging investment and new activities; not to speak of the macroeconomic impact of a severely devalued peso.
The same applies to Mr. Trumps pledge to deport a few millions Mexicans, in terms of the social pain the threat is creating.
As to the “great, great wall“, Mr. Trump’s proposal to stop illegal Mexican immigrants: it could never be built. Along its 1,954 miles, it would cross over private and state properties — people’s gardens and cultivated land, national parks, golf courses, creeks, rivers (which would dry out) and the mother of all rivers, the Rio Grande.
Mr. Trumps supporters bought as feasible the herculean effort of building a steel, rebar and hardened concrete 18-foot-high wall “extending for another 6 feet underground into a bed of concrete”, also because the President never explained — as he did for none of his proposals —the sheer nightmare that expropriating private properties, renegotiating the Mexico-US Boundary Treaty and finding the funds to pay for it would mean (former and current Mexican presidents stated that they are “not going to pay for that f****** wall”).
Mexico’s political dynamics are far from stable and ideal. Mr. Trump in the White House will exacerbate those conflicts, on top of striking a blow not only to Mexico’s unequal but thriving economy, but also to its fragile social stability, and to the many Mexicans that hoped for a better life north and south of the Rio Grande.
There is a flip side for Mexico: if Mr. Trump imposed tariffs on commodity imports, world producers and exporters will benefit from moving their full operations south of the border.
