Mexico Eyes Asia, Latin America To Offset US Trade Risks Under Trump

Trade & Policy

Mexico Eyes Asia, Latin America To Offset US Trade Risks Under Trump

Having hitched its fortunes to free trade with the United States for over two decades, Mexico faces a hard road to find new markets if US president-elect Donald Trump carries out threats to force significant changes to the terms of the deal.

Pitching a protectionist message to US workers disaffected by globalisation, Trump has vowed to rescind NAFTA if he cannot renegotiate it and halt the migration of jobs south to cheaper Mexican factories.

If Trump follows through, Mexican policymakers say they will have to try to offset losses in US trade by promoting closer commercial ties with Asia and Latin America, as well as seek to work alongside Canada to defend NAFTA. From 1994, NAFTA united Mexico with the United States and Canada in a single free trade area, modernising its economy. Backers argue it made the whole continent more competitive, but Trump complains it hollowed out US manufacturing.

"If TPP doesn't flourish, Mexico needs to have another strategy to strengthen trade with Asia," Mexican Economy Minister Ildefonso Guajardo said. Mexico would also seek to be "twice as aggressive" in strengthening trade ties with both Asia and Latin America.

Trump has called NAFTA the "worst deal ever" and threatened to impose tariffs of up to 35% on Mexico's goods. He has also pledged to build a giant wall along the border with Mexico to halt the influx of illegal immigrants. On a visit to Mexico to meet President Enrique Pena Nieto in late August, he struck a more conciliatory tone, stressing the importance of keeping "manufacturing wealth" in North America, but also highlighting the need to "update" NAFTA.

Diversification

To broaden its trading reach, Mexico has been in talks with countries including South Korea, Argentina and Brazil, and those could be accelerated if necessary, government officials say. Mexico may also seek a free trade deal with China. That could face opposition from Mexican companies wary of Chinese competitors but there is a growing belief among business leaders that Mexico must broaden its trade base in Asia.

Trade between Mexico and the United States is worth about half a trillion dollars a year, giving Mexico a large surplus. But the country runs large deficits with its top Asian partners, especially China. More than 90% of $76 billion in 2015 bilateral Chinese trade, including Hong Kong, were imports. Mexico's government has sought to strengthen ties with China under Pena Nieto, who in less than four years has met his Chinese counterpart six times - twice the number his predecessor Felipe Calderon managed in six years.

To bolster his outreach to Asia, Pena Nieto plans to visit Asian signatories of TPP early next year, according to officials.

First and foremost, however, Mexican officials aim to preserve as much existing trade as possible with the United States, pointing to evidence of the shared benefits of increasing US and Mexican economic integration. A 2014 study by the Boston Consulting Group on the world's 25 top exporting nations found that Mexico and the United States had improved their competitiveness against all the other economies on the list during the preceding decade.

Mexico eye non-US TPP

Business leaders south of the border say the US presidential campaign has underlined Mexico's need to reduce its dependence on the United States and the Mexican government sees TPP as a crucial part of efforts to trade more with Asia.

Guajardo said he expected as many as seven signatories to have ratified TPP by the end of 2016, mentioning Japan, Mexico, New Zealand, Australia, Singapore, Vietnam and Malaysia. Japan's lower house approved the deal last week.

If the US Congress does not ratify the deal, Guajardo said consideration should be given to whether the remainder could put into effect without the world's biggest economy. "We'll need to talk with the others to change the limiting clause that meant us having to wait until the United States had completed the approval process," Guajardo said.