When Ildefonso Guajardo Villarreal, the Mexican secretary of the economy, came to talk to me last week about trade and the American elections, I didn’t expect him to drag up the old spat between Mexico and the United States over trucks.
Back when it signed on to the North American Free Trade Agreement more than 20 years ago, the United States pledged that in the year 2000 it would lift restrictions that kept Mexican trucks from hauling cargo inside the United States, forcing them instead to dump their loads at the border. But when the time came, under pressure from the Teamsters and the union’s allies in Congress, Washington backed out.
Mexico kept its cool for a while, though an arbitration panel in 2001 found the United States was in breach of the agreement. In 2007, Mexico accepted the George W. Bush administration’s request to cooperate in a pilot program that allowed a few Mexican trucks over the border, to prove that the rigs and their drivers posed no undue safety threat to the United States.
But when Congress cut funding for the pilot program two years later, Mexico said enough.
Mexico slapped retaliatory tariffs, ranging from 5 percent to 25 percent, on a list of products that amounted to over $2 billion in American exports to Mexico. It included apples from Washington — to help sway the views of Senator Patty Murray — and Christmas trees from Oregon, the homeland of Senator Ron Wyden, another critic of the cross-border trucking deal.
Sure enough, common sense prevailed: On July 6, 2011, the two countries signed an agreement to allow Mexican trucks to operate in the United States. On Oct. 21, 2011, the first Mexican truck rumbled across, and the last retaliatory tariff was removed.
Few, if any, countries would be as vulnerable to a Trump presidency as Mexico. About $4 of every $5 worth of goods that Mexico exports come to the United States. Some 35 percent of Mexican jobs depend directly on foreign trade.
Mexico’s future relies on North American integration. “That’s Mexico’s vulnerability,” said Luis Rubio, who heads the Center of Research for Development in Mexico City. “There is nothing more important in Mexico than Nafta.”
The Mexican president, Enrique Peña Nieto, has already tripped over himself trying to deal with Donald J. Trump. Many Mexicans felt betrayed when Mr. Peña Nieto invited Mr. Trump to a meeting in Mexico City, sending his low approval ratings plummeting further. And the meeting hardly improved relations. Hostilities broke out as soon as it was over.Continue reading the main story
The minister of the economy, Mr. Guajardo Villarreal, argues there is little point for Mexico to respond now to Mr. Trump’s threats to wall off the Mexican people and slap a 35 percent tariff on Mexican imports. “We must not overreact to campaign rhetoric,” he told me. Still, the truck story suggests the Mexican government understands that it needs a contingency plan in case Mexico’s most important partner on the world stage were to suddenly turn hostile.
The outline of a strategy seems clear: Mexico must communicate to the United States just how valuable their relationship is, and how self-destructive it could be to undermine it. The question is how to make this case. How persuasive can Mexico be?
A slide from a presentation that Mr. Guajardo Villarreal and his aides carry with them as they speak to American business and political leaders shows what the 2017 Ford Fusion, made in Hermosillo, in northern Mexico, would cost if a 35 percent tariff were imposed on imports from Mexico: $30,253, which is almost $8,000 more than it costs now. Another slide shows that eight of 10 avocados consumed in the United States are grown in Mexico, as are nine of 10 limes and half of all tomatoes.
Six million American jobs also depend on exports to Mexico, one slide says. Mexico buys nearly $250 billion worth of stuff from the United States. And 37 cents out of each dollar’s worth of Mexican exports to the United States came from the United States in the form of parts and other components. “If you throw obstacles at the relationship with Mexico, you would be shooting yourself in the foot,” Mr. Guajardo Villarreal told me.
Allies in the United States would indeed help Mexico make its case, including states and municipalities that would be hurt by Nafta’s unraveling, and businesses that would be forced to relocate production and rethink their global supply chains.
But perhaps a more muscular approach is needed. Jorge Castañeda, a former Mexican foreign minister who is a harsh critic of Mr. Peña Nieto, suggests that Mexico’s best argument is that the country’s stability and prosperity are indispensable for the national security of the United States. Americans worried about illegal immigration across the southern border might stop to consider what it could look like if the Mexican economy went into a tailspin.
If this argument fails to persuade, Mr. Castañeda argues, there are other tools in the toolbox. Say Mexico demanded that the United States prove that a migrant was Mexican before it would accept her back into the country. It could deploy American courts and regulations against Mr. Trump’s wall, pushing for things like environmental impact assessments. “We should throw as many monkey wrenches into the works as possible,” Mr. Castañeda said.
And together with Canada, Mexico should sue in every court — under the provisions of Nafta, the World Trade Organization and the United States — to resist Mr. Trump’s protectionist agenda.
A big question remains, however: If a Trump administration were to follow through on its threats — breaking the rules of Nafta and the W.T.O. — how strongly should Mexico retaliate?
It has shown it knows how. In the truck spat, Mexico picked political targets skillfully. It avoided shooting itself in the foot when it retaliated against Christmas trees rather than car engines. “Mexico has been very good at trying to follow the rules of trade agreements when it has run into trade frictions with the United States,” said Chad Bown, an expert on trade at the Peterson Institute for International Economics.
Yet, as Mr. Bown observed, in the early days of a Trump administration — when he wouldn’t be worried about re-election — “what products would you pick?”
A trade war would certainly hurt the United States. Scholars at the Peterson Institute modeled what would happen if America were to slap sky-high tariffs on Mexico and China and they were to reply in kind: By 2019, the trade war would cost hundreds of billions of dollars in lost output and would result in the loss of nearly 4.8 million private sector jobs.
The problem for Mexico is that the damage to its own economy would be much larger. “If we are to go to war, of course we have rifles,” Mr. Rubio said. But the economic weapons his country has at its disposal, he added, are like “nuclear bombs that you can’t use.”
Lamenting their luck, Mexicans often say, “Poor Mexico, so far from God and so close to the United States.” Facing the prospect of a Trump presidency, many Mexicans would hope their northern neighbor were farther away. But Mexico’s prosperity depends on a closer relationship with the United States, not a weaker one. The best approach to a Trump administration may be to hunker down and wait for his successor.