FORGING AHEAD

Mexico 2017 | DIPLOMACY | REVIEW

As Mexico's relations with the US become more uncertain, China has become an interesting trade alternative, and officials in both countries are pushing for deeper economic and political ties.

Thanks to Mexico's central position in global trade networks, it has become a key player in international diplomacy. Its influence and interests extend well beyond the Western Hemisphere, and it is taking an ever-larger role in a number of key forums and agreements. Thanks to its various trade agreements, Mexico enjoys access to nearly 60% of the world's GDP and more than 50% of global commerce. With more free trade agreements than any other nation on the globe, Mexico is a powerhouse that derives a great deal of its international political clout from its robust global economic agreements.

There have, however, been hiccups, and Donald Trump's election to the presidency in the US has the potential to undermine Mexico's vital relations with its neighbor to the north. Additionally, persistent problems with major drug cartels and the destabilizing effects of the international drug trade remain a major point of international concern. The continued struggle to stop drug violence in the country has taken its toll on Mexico both internally and externally, yet there are signs that the country is making renewed progress. Enrique Peña Nieto's presidency has been marked by wide-ranging reforms that have sought to stimulate economic growth while strengthening transparency across the country. Nieto's reforms have not been completely successful, though, and GDP growth hovers at around 1%.

US and NAFTA

Relations with Mexico's North American neighbors have long been central to its diplomatic efforts. Of particular importance has been the North American Free Trade Agreement (NAFTA), which has facilitated an unprecedented flow of goods and services throughout North America since 1994. During the life of the agreement, FDI in Mexico has more than doubled, averaging more than 2.6% of GDP every year, and bilateral trade between Mexico and the US alone is around USD580 billion. The close relationship between Mexico and the US may, however, be in jeopardy. Recent protectionist rhetoric and campaign promise to renegotiate NAFTA by President Trump have put the continued success of the agreement into question. While officials in Mexico have chosen to respond with prudence, adopting a wait-and-see attitude, a number of unknowns remain. Mexican collaboration with the US extends well beyond international trade, and officials are hopeful that outsized rhetoric will not trump sound policy and good political sense.

In an exclusive interview with TBY, Alicia Bárcena discussed the possible impact that the Trump presidency might have on Mexico. “We are respectful of the democratic processes of all countries, and we will have to wait and see if all the proposals made [by Trump] during the campaign are indeed translated into economic policymaking,” said Bárcena. “In any case, we must be aware of the possibility of a renegotiation of NAFTA and the discussions on immigration control and border security.” As Mexican and world leaders wait to see what exactly unfolds, they are optimistic that a successful dialog will eventually take place, but they are confident that Mexico has the economic strength and political will to weather any storms that may arise.
President Trump recently took steps to abandon the Trans-Pacific Partnership, an agreement that had taken more than seven years to negotiate and included 12 nations that accounted for nearly 40% of the global economy. This decision effectively undermines the trade agreement, forcing Mexico to reimagine that aspect of its trade policy. With the US appearing less and less like the reliable ally it has been in the past, Mexican leaders in the public and private spheres have begun looking farther afield for international trade and political partners.

China

As relations between Mexico and the US remain strained, Mexico's relations with China continue to improve. Fears regarding the impact that poor relations with the US might have on the Mexican economy have prompted Mexican officials to seek new opportunities with China, and their Chinese counterparts have been extremely welcoming. Mexican officials have had a number of high-profile meetings with their Chinese counterparts, including a recent meeting between Chinese State Councilor Yang Jiechi and Mexican Foreign Minister Claudia Ruiz Massieu, at which a wide variety of topics ranging from increased investment and economic ties to better flight connections between the respective countries were discussed. Mexican officials are trying to establish a new diplomatic dynamic with China, emphasizing mutual trust and mutual interests, according the Mexican Foreign Ministry.

One of the first concrete steps in this new direction was the recent China Homelife fair in Mexico City. This trade show was intended to increase bilateral relations between China and Mexico, and more than 750 Chinese suppliers operating in dozens of industries were able to show off their wares to Mexican firms. This fair was the first of its kind in Mexico in recent years, and officials in the public and private sector in both countries expect it to inaugurate a new era in Chinese-Mexican diplomatic and economic relations.

Chinese officials have also been keen to expand their investment footprint within Mexico, and these overtures have been met with a great deal of enthusiasm. The Yucatan Peninsula, in particular, has garnered a great deal of attention from Chinese developers, and there have been efforts by Chinese interests to expand the area's industrial, tourism, and commercial potential, according to The Yucatan Times. Officials from the peninsula have hosted several high-profile meetings with Chinese business leaders and diplomats, and large-scale investment appears highly likely. By expanding the scope of trade and economic activity between the two countries, officials hope to cement a long-lasting and prosperous relationship.

Latin America

In recent years, Mexico has also been trying to expand and strengthen its relations with other Latin American countries. Increasing ties with Brazil has been particularly important for Mexican officials, and strong economic and political linkages have been developed. Many Mexican officials see Brazil as a key partner in the future of Mexico and the region. According to Jose Antonio Meade, Mexico's current Secretary of Finance and former Secretary of Foreign Affairs, “For Mexico, Brazil is the most important exporting market in Latin America, and the most important destination of our foreign investment in Latin America.” Officials in both countries view strong ties between Mexico and Brazil as key for integrating Latin America and strengthening the region's position on the global stage, according to the Development Bank of Latin America.

With Brazil's recent ratification of the Brazil-Mexico Cooperation and Investment Facilitation Agreement, authorities in both countries have further cemented their relationship. The new agreement calls for a new model for investment defined by a robust intergovernmental consultation process, strong internationalization support, cooperative regulatory frameworks, renewed invigoration of business opportunities, and dispute settlement mechanisms. Additionally, Brazil's status as a global breadbasket offers Mexico a potential alternative in terms of grain import, particularly corn, as its historical reliance on the US for food importation may be in jeopardy.

Mexico's relations with Latin America are not, of course, limited to ties with Brazil. One of Mexico's other key partnerships is with the Pacific Alliance, a trade bloc that includes Chile, Colombia, and Peru. Together this trade alliance represent approximately 36% of Latin America's GDP, representing a nominal GDP of more than USD2.2 trillion and a purchasing power parity (PPP) GDP of more than USD3.7 trillion. Ties between these four nations are manifest not just in economic agreements, but also in shared promotion entities and joint diplomatic missions in a number of countries across the globe.

As Mexico has been expanding its influence across Latin America, it has focused on creating lasting relationships through investment and economic partnership.

In an exclusive interview with TBY, Juan Orlando Hernández Alvarado, President of Honduras, discussed the importance of Mexico's investment in Honduras and the implications it has for further relations. “Mexico is not only an important trading partner but also a prominent investor in our country,” said Alvarado. “With trade of approximately USD1 billion and hopefully rising, I hope these ties will strengthen and continue to generate more jobs in both countries.” Mexico and Latin America, and Honduras in particular, have been forging close ties in recent years, and as Mexico seeks to further cement its status as a regional leader, such overtures are likely to continue unabated. Much of Latin America's political leaders would no doubt agree with President Alvarado's sentiment when he noted, “I am convinced that the arrival of Mexican companies would not only benefit Honduras… but Mexico as well.”

Mexico and Mexican companies are engaged in a serious push to bring renewed economic vitality to themselves and their neighbors through investment and trade agreements. Argentina has also been a candidate for new trade deals, and the country's large exports of wheat, soybeans, and beef make it particularly attractive. Mexico, which has relied heavily on the US for its food crops, has considered developing multi-dimensional trade deals with the country. Mexican officials in many different departments have recently articulated their optimism in terms of developing a new system of trade relations with Argentina, and agreements between each country are forthcoming.

As the political entities continue to make arrangements for cementing relations, companies across various industries are taking the initiative. Interests in agriculture, manufacturing, construction and various other industries are extending the purview of their operations in Mexico, according to US news. NAFTA-related uncertainties have opened the door for many different countries, and the potential for new trade agreements and new trade blocs abound. As Mexico continues to navigate the somewhat stormy seas of its current relationship with the US, its enviable position in terms of global trade integration makes it a valuable and attractive partner for most of the world's largest economies and influential governments.