Mexico takes American side in US-China trade war

Mexico is currently experiencing a serious social and economic crisis. The global pandemic of the new coronavirus is affecting the country fiercely, counting 317,000 confirmed cases and 37,000 deaths. In the first two quarters of 2020, Mexican GDP shrank 1.7%. It is estimated that at least 9 million Mexicans will go into poverty due to the social chaos generated by COVID-19. It is estimated that 70 million people will face economic difficulties in the country – about 56% of the national population. To escape the financial and social chaos, the Mexican government is betting on proposals of international cooperation and seeing international agreements as the main chance to prevent the crisis from worsening.

The main bet of cooperation of the Mexican government is with the neighboring countries of the north through the USMCA (United States-Mexico-Canada-Agreement), also called “new NAFTA” or “NAFTA 2.0”, a free trade agreement that became effective July 1. Mexico saw the agreement as an opportunity to strengthen its ties with the U.S., overcoming the relationship of uncertainty that had been created since 2016, when Trump had promised to break free trade agreements with the Latin country. Replacing NAFTA, the USMCA sets a new path for economic integration in North America, but the nature of this new path and its benefits for Mexico remain uncertain.

The terms of the agreement are clearly designed to guarantee American interests in a global context of trade war. The agreement, for example, establishes a rule for the automotive sector and an agreement with which 75% of the production of vehicles must necessarily originate in the countries of the region. Apparently, this measure would be generating continental protectionism to strengthen local economies, but, in truth, the objective is different: to prevent negotiations with China and to favor Washington in the trade war.

There is yet another curious rule established specifically for the automotive industry that directly harms Mexico: the agreement states that 45% of vehicles produced in North America must be manufactured by workers who receive a minimum wage of $ 16 an hour. The salary is fair, but it does not meet Mexico’s labor and economic reality, especially during the crisis generated by the pandemic. In practice, this percentage of workers could only be supplied by the USA and Canada, which would have their markets strengthened. It is a real blow to the Mexican automotive industry.

One of the most controversial points of the agreement is its clause 32.10, which states that if a North American country makes an agreement with a country that does not have a free market regime, this agreement must be reviewed and approved by all members of the USMCA. Apparently, this clause was meticulously designed to affect China, a country that does not adopt a free market system and that disputes with the United States in a trade war. In practice, this means that any agreement with Beijing can be vetoed and, thus, relations between Mexico and China could be near the end.

Cooperation between Beijing and Mexico City are many, mainly in infrastructure projects, as evidenced by the Chinese participation in the “Tren Maya” railway project. The ties are many, but the position of Chinese economic superiority is fully evident, with Mexico being the weakest part of the relationship. In 2019, Mexico imported 12 times more products from China than it exported. In short, China does not establish a relationship of economic dependence with Mexico and the end of strategic partnerships would mean much more for the Latin country, which does not have a strong and developed industrial policy, than for the Asian country, which is in the best phase of its history and is able to look for other markets in any part of the planet.

Obviously, there is nothing wrong with a country establishing strict economic rules to limit imports and exports, in order to develop its economy. However, these measures are only rational and necessary when inserted within a national sovereign project, which is not the case with the USMCA. Mexico is not abdicating its relations with China to develop its economy through protectionist policies, but it is adhering to American protectionism and taking sides in a trade war in which it should not participate.

The most strategic and rational for the Mexican government would be to create international cooperation projects that are politically out of alignment and aimed only at the benefit of the country’s economy. Projects should be developed on a case-by-case basis, considering each sector of the economy and each country capable of cooperation. The current policy, however, is different: investing in relations with the North in a policy of automatic economic alignment, abdicating relations with any country that poses a threat to American hegemony.

The US and Canada, rich and aligned countries, will benefit from the USMCA, Mexico will not. For a president who came to power with several promises of social reform, Lopez Obrador is taking inadequate paths and putting Mexican sovereignty and economy at real risk.