Can Mexico’s Economic Power Withstand Trump? Can or Not, Mexico Already “Pivoting Away from U.S.”

CNN (source) reports with the headline: “Mexico doubles down on pivot away from U.S.” Never box someone into a corner, because you never know what they may do, is the old saying. And for a long time now, since the 2016 American election cycle, Trump has been bashing Mexico and Mexicans, on a variety of front, culturally calling Mexicans rapist and economically, with trashing of NAFTA. Does Mexico leader feel they are boxed in by Trump? Perhaps Mexico’s leader do feel some of that, as CNN reports indicates, maybe they are sick of Trump, as much of Americans are, with Trump approval by Americans at about 35%.

CNN reports: Mexican officials kick off talks with their conterparts in the European Union on Monday to update their own free trade agreement initially signed in 2000. Talks between the two sides have taken on a sense of urgency and are on an accelerated schedule now — the first time Mexico and EU held these talks was in 2013.  Both sides had expressed a desire for a new agreement for years, but only announced “accelerated” trade talks shortly after Trump took office.

“It’s a shared desire to proceed as quickly as possible with this negotiation,” Andrew Standley, the European Union’s ambassador to Mexico, told CNNMoney in February in Mexico City.  That’s not all. Mexican officials head to Argentina later this week for the World Economic Forum’s Latin America summit where they will likely reiterate their interest in buying more goods — particularly corn and soy — from Brazil and Argentina instead of the United States.  Last week, Mexico’s deputy economic minister, Juan Carlos Baker, told the Financial Times that Mexico is already in talks with the two South American giants to strengthen trade ties.

“There is a lot of potential for a win-win situation,” Martin Redrado, Argentina’s former central bank president and director of Fundacion Capital, a non-profit research institute, told CNNMoney. “Mexico has always been welcome in Latin America.”

Mexico’s Economic Power:

Mexico has the Planet’s 15th largest nominal GDP and the 11th largest by purchasing power parity. GDP annual average growth for the period of 1995–2002 was 5.1%.[87] Mexico’s Gross Domestic Product (GDP) in purchasing power parity (PPP) was estimated at US $2.2602 trillion in 2015. Mexico’s GDP in PPP per capita was US $18,714.05. Mexico is now firmly established as an upper middle-income country. After the slowdown of 2001 the country has recovered and has grown 4.2, 3.0 and 4.8 percent in 2004, 2005 and 2006,[170] even though it is considered to be well below Mexico’s potential growth.[171] Furthermore, after the 2008–2009 recession, the economy grew an average of 3.32 percent per year from 2010 to 2014.

According to a 2008 UN report the average income in a typical urbanized area of Mexico was $26,654, while the average income in rural areas just miles away was only $8,403.[177] Daily minimum wages are set annually by law and determined by zone; $67.29 Mexican pesos ($5.13 USD) in Zone A and $63.77 Mexican pesos ($4.86 USD) in Zone B.[178]

The electronics industry of Mexico has grown enormously within the last decade. Mexico has the sixth largest electronics industry in the world after China, United States, Japan, South Korea, and Taiwan. Mexico is the second largest exporter of electronics to the United States where it exported $71.4 billion worth of electronics in 2011.[179] The Mexican electronics industry is dominated by the manufacture and OEM design of televisions, displays, computers, mobile phones, circuit boards, semiconductors, electronic appliances, communications equipment and LCD modules. The Mexican electronics industry grew 20% between 2010 and 2011, up from its constant growth rate of 17% between 2003 and 2009.[179] Currently electronics represent 30% of Mexico’s exports.[179]

Mexico produces the most automobiles of any North American nation.[180] The industry produces technologically complex components and engages in some research and development activities.[181] The “Big Three” (General Motors, Ford and Chrysler) have been operating in Mexico since the 1930s, while Volkswagen and Nissan built their plants in the 1960s.[182] In Puebla alone, 70 industrial part-makers cluster around Volkswagen.[181] In the 2010s expansion of the sector was surging. In 2014 alone, more than $10 billion in investment was committed. Kia Motors in August 2014 announced plans for a $1 billion factory in Nuevo León. At the time Mercedes-Benz and Nissan were already building a $1.4 billion plant near Puebla, while BMW was planning a $1-billion assembly plant in San Luis Potosí. Additionally, Audi began building a $1.3 billion factory near Puebla in 2013.[183]

The domestic car industry is represented by DINA S.A., which has built buses and trucks since 1962,[184] and the new Mastretta company that builds the high-performance Mastretta MXT sports car.[185] In 2006, trade with the United States and Canada accounted for almost 50% of Mexico’s exports and 45% of its imports.[13] During the first three quarters of 2010, the United States had a $46.0 billion trade deficit with Mexico.[186] In August 2010 Mexico surpassed France to become the 9th largest holder of US debt.[187] The commercial and financial dependence on the US is a cause for concern.[188]

The remittances from Mexican citizens working in the United States account for 0.2% of Mexico’s GDP[189] which was equal to US$20 billion per year in 2004 and is the tenth largest source of foreign income after oil, industrial exports, manufactured goods, electronics, heavy industry, automobiles, construction, food, banking and financial services.[190] According to Mexico’s central bank, remittances in 2008 amounted to $25bn.[191] Major players in the broadcasting industry are Televisa, the largest Spanish media company in the Spanish-speaking world,[192] and TV Azteca.

CNN reports:

Mexico is not feeling so welcome in North America. Trump has threatened to use tariffs against Mexican imports and to withdraw from NAFTA, the trilateral free trade agreement that also includes Canada. (However, the Trump administration recently signaled it may not seek a wholesale rewrite).  Mexico is one of the biggest buyers of American corn and soy. Corn is a staple food to the Mexican diet, found in everywhere from taco stands to fine dining restaurants.  It’s a fortuitous time for Mexico to look south and east. Argentina and Brazil, two of the world’s most closed economies to trade, have leaders trying to shed protectionist policies for free trade. Argentine President Mauricio Macri eliminated tariffs last year on agricultural exports put in place by the country’s previous populist regime. Argentina just ended a recession, yet is growing slowly.

Related: Trump NAFTA memo offers first look at trade goals

In Brazil, President Michel Temer is seeking just about any measure to help boost the nation’s economy, which is suffering through record high unemployment and its longest recession in history. Europe is also eager to find more willing trade partners after talks on an ambitious trade deal with the U.S. — the Transatlantic Trade and Investment Partnership (TTIP) — stalled well before Trump won office.  The challenges, experts say, is for Mexico to find areas where it complements — instead of competes with — its partners. As a major auto manufacturer, it may risk competing in Europe against auto giants like Daimler (DDAIF)’s Mercedes and BMW (BMWYY). And Argentina and Brazil are also auto production hubs.  But Volkswagen has its largest plant outside of Europe in Mexico, and BMW is slated to open a new facility in Mexico in 2019. For now, the relationship appears to benefit both sides.

Related: Europe rescues its huge free trade deal with Canada

However, most Mexican auto workers make parts — not the final car — so the key will be deciding which parts Mexico manufactures and which others produce to make all sides happy. Experts say the same complementary strategy has to be applied to agriculture to prevent lost jobs. Still, Mexico has already had free trade success with the European Union. Between 2005 and 2015, annual trade flows between the two doubled to $56 billion. Europe has represented 40% of total foreign investment in Mexico since 2000, according to EU officials and data.


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