The last time Donald Trump was in the White House, Mexico’s economy did surprisingly well. The Spanish-speaking country, and global CEOs who have rebuilt their supply chains around it, will be hoping that the US president-elect’s initial hostility once again amounts to nothing. That looks too optimistic.
As in 2016, Trump’s 2024 election campaign was full of alarming pledges from the perspective of the United States’ southern neighbour, whose $1.9 trillion economy is the world’s 13th largest, according to the International Monetary Fund. Last week, he promised to impose a 25% tariff on Mexican goods on his first day in office until the country clamped down on drugs and migrants crossing the border.
Perhaps surprisingly, the government of new President Claudia Sheinbaum seems relatively sanguine, touting a friendly phone call with Trump later in the week. Economy Minister Marcelo Ebrard, who was Mexico’s foreign secretary during Trump’s first term, has talked up his country’s negotiating power, stating that tariffs would cost US jobs and hurt growth, since firms from General Motors to Stellantis have sites in the Latin American economy.
History supports a relaxed attitude. Trump entered the White House in 2017 promising to radically reshape the North American Free Trade Agreement (NAFTA) to US workers’ advantage and build a border wall at Mexico’s expense.
In reality, the 2018 United States-Mexico-Canada Agreement (USMCA) contained relatively little to worry its southernmost signatory. Multinational companies, particularly carmakers, subsequently rejigged their supply chains to send more wares through Mexico or make them there – a process known as nearshoring. In early 2023, for example, Germany’s BMW said it would invest $870 million to extend its site in the central state of San Luis Potosí.
Trade has boomed. Last year, Mexico sent $475 billion of goods exports to the United States, surpassing China. A Brookings Institution analysis concluded that the number of Mexican jobs supported by intra-North American trade rose by about 2 million between 2017 and 2022. In short, Trump’s combative rhetoric from eight years ago turned out to be bluster.
It would be unwise for Sheinbaum to bet on a repeat, however. Trump’s choices for his cabinet suggest he is shunning some of the moderating influences that characterised parts of his first term. Howard Lutnick, Trump’s nominee to lead the Commerce Department and trade policy, has criticised the USMCA for hurting automanufacturing jobs.
Mexico’s success under the agreement, meanwhile, makes it a more conspicuous target. The country’s trade surplus with the United States rose 140% between 2016 and 2023 to $152 billion, using US Census Bureau data, while China’s fell by a fifth to $279 billion. If trends continue at the same rate, the US trade deficit with Mexico would exceed its shortfall with China in absolute terms by 2027, according to calculations.
The Latin American country also seems entangled with the People’s Republic. Economy Minister Ebrard has tried to defuse this point, claiming recently that just 0.4% of Chinese investment into North America goes to Mexico. But those numbers reflect the economies’ vastly different sizes and levels of financial-market sophistication. The trade figures are more nuanced.
China accounts for a fifth of goods shipped into Mexico, UN Comtrade data shows, up from 15% in 2012. It's difficult to tell from the statistics what proportion of those goods head onwards into the United States. The Bank of Mexico argued in a recent analysis that it was tiny. The danger for Sheinbaum is that Trump and Lutnick don’t bother to try and find out, and instead jump to the conclusion that Chinese manufacturers are using Mexico to gain cheap access to the US market. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
