Tuesday, January 24, 2017

Facing Trump, Mexicans Think the Unthinkable: Leaving Nafta

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Cargo trucks in Laredo, Tex., on Mexico’s border. About $1.4 billion in goods go back and forth over the border daily. CreditEric Gay/Associated Press
MEXICO CITY — Not long ago, any suggestion that Mexico might walk away from the North American Free Trade Agreement would have been met with utter disbelief.
That was before Donald J. Trump was elected president of the United States.
Free trade is a mantra of Mexico’s political elite, the core of the country’s development strategy.
But now that Mr. Trump has said he wants to renegotiate Nafta, a growing number of Mexican officials and businesspeople are asking what price is worth paying to stay in it. Many of them are concluding that Mexico could have more to lose from years of haggling and economic uncertainty than from simply opting out.
“There could be no other option,” Mexico’s economy minister, Ildefonso Guajardo, said on Tuesday in a televised interview. “If we go for something that is less than what we have, well, then there is no sense in staying.”
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About $1.4 billion in goods go back and forth across the Mexico-United States border every day. The United States buys almost 80 percent of Mexico’s exports, and Mexico is the second-largest market in the world for American goods.
Exactly how Mr. Trump’s government is proposing to renegotiate that flow is still unclear. The Mexican government says that Mr. Guajardo and Mexico’s foreign minister, Luis Videgaray, expect to get a first look when they arrive in Washington on Wednesday for two days of talks with officials in the Trump administration.
Mexico’s president, Enrique Peña Nieto, is then scheduled to meet Mr. Trump on Jan 31.
The Mexican government’s talk of walking away from Nafta if the Trump administration demands terms that are too tough could be strategic bluster, a tactic to begin the discussions on stronger footing.
To drive home Mexico’s importance to the United States, the Mexicans also intend to raise many other issues that bind the countries together, including migration, border security and drug trafficking.
The United States depends on Mexico to fight drug cartels and stop migrants from Central America and other regions who are trying to reach the United States.
So Mr. Peña Nieto’s government is trying to present “a package deal” to the Trump administration, in a tacit warning that Mr. Trump’s proposed wall would be an inadequate replacement for Mexico’s help on migration and security.
The message Mexico hopes to deliver is that “if you build your wall, the wall will have to substitute everything that we used to do,” said Jorge Castañeda, a former Mexican foreign minister.
And by tying trade to security, Mexico will also be able to buy time in negotiations, contended Rafael Fernández de Castro, an adviser to former President Felipe Calderón.
More time could allow businesses in the United States that depend on Nafta, along with states like Texas that send billions of dollars in exports to Mexico, to make their own case for preserving the agreement.
But the suggestion that ardent free traders in Mexico are even entertaining the idea of leaving Nafta is evidence of the turmoil Mr. Trump’s election has created south of the border.
During the election campaign, Mr. Trump called Nafta “the single worst trade deal ever approved in this country” and promised to renegotiate it or pull the United States out of it. He has threatened to impose a “border tax” on companies that move factories to other countries and send their products back to the United States.
Mr. Trump built his campaign on a promise to return manufacturing from lower-wage countries like Mexico to the depressed towns of America’s Rust Belt. Since the election, his warnings have already had a paralyzing effect in Mexico.
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President Enrique Peña Nieto of Mexico has said trade among his country, the United States and Canada “must be free of any tariff or quota.”CreditEdgard Garrido/Reuters
The peso has sunk to record lows. The Ford Motor Company has canceled a $1.6 billion factory, and General Motors has announced it will send some auto parts work back to the United States. Uncertainty is sure to stall future foreign direct investment.
So far, Mr. Peña Nieto has offered a ringing affirmation of Mexico’s commitment to free trade.
“We must preserve free trade among Canada, the United States and Mexico,” he said Monday, laying out Mexico’s foreign policy in the face of the Trump policy. “Trade among the three countries must be free of any tariff or quota.”
But the emerging belief that no Nafta may be preferable to years of fractious negotiations came into the open during a discussion this month at the elite university that is the brain trust of Mexico’s free trade gospel.
Many of Mexico’s government ministers have studied or taught at the university, the Autonomous Technological Institute of Mexico, or ITAM, and some of those who were the architects of Nafta were on hand to hear the rector, Arturo Fernández, say the unthinkable.
“It would be, perhaps, preferable to leave Nafta aside rather than a long process of negotiation and tension,” Mr. Fernández said.
Mr. Castañeda, the former foreign minister, who proposed in November that Mexico should consider leaving Nafta if Washington demanded a full-blown renegotiation, said that policy makers had come around to the idea that “they have a choice between a terrible Plan A and a terrible Plan B.”
Many businesspeople have made peace with that idea.
“We have our own principles that we have to defend,” said Juan Pablo Castañón, the president of Mexico’s Business Coordinating Council, a coalition of business groups.
“If there aren’t the right conditions, then we have to contemplate the possibility of not staying within the treaty and working with international rules instead.”
Without Nafta, trade between Mexico and the United States would be governed by World Trade Organization rules, Mexican trade experts say. Tariffs for imports of Mexican goods into the United States would probably rise to an average of about 3 percent, an increase that experts say is not enough to deter trade.
“It will not be the end of the world,” said Mr. Fernández de Castro, the former adviser. Knowing this, he said, means that “Mexico can negotiate standing up.”
Not everybody is convinced that the government is prepared to walk away from the table.
“In reality, up to now this is a negotiating tactic and not a position that they intend to take to its final consequences,” said Carlos Heredia, a professor at CIDE, a Mexico City university. “Maybe I am mistaken.”
Without much besides Mr. Trump’s statements to go on, Mexicans have tried to parse the Senate testimony last week of Wilbur L. Ross Jr., Mr. Trump’s nominee to lead the Commerce Department, to understand what Washington’s opening position may be.
Luis de la Calle, a former Mexican trade negotiator, said renegotiation may be limited to several technical issues, including the complex rules allowing products like cars and electronics — which contain parts from all over the world — to move duty-free through North America.
“We need to try and keep emotions out of the negotiations,” he said.
Even with the barrage of Twitter messages and statements against Nafta from Mr. Trump, Mexico may have leverage in any renegotiation because it is such an important customer for American goods.
“On the trade side, we understand what Trump says, but on the other hand, we have cards to play because we’re the second-largest market,” said Andrés Rozental, a former deputy foreign minister. “We can find much of what we buy from the U.S. elsewhere.”
Mr. de la Calle argued that Mexico will become the largest market for American exports within five years, surpassing Canada. “The structural reasons for integration won’t change,” he said.
“We Mexicans have patience; we take the long view.”

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