Thread: “Trumpsteroid” to impact Mexico in T-minus 4 days… (The Economist)

ANALYSIS: “Trumpsteroid” to impact Mexico in T-minus 4 days… (The Economist)


Bracing for impact. Donald Trump’s presidency is about to hit Mexico (Image: The Economist)

Published On: Mon, Jan 16th, 2017

When an asteroid hit Earth 66 million years ago, wiping out the dinosaurs and 75% of plant and animal species, it hurt Mexico first (specifically the Yucatan Peninsula). Donald Trump’s inauguration is far less frightening, but Mexicans can talk of little else.

Outside a massive Volkswagen (VW) factory in Puebla, two hours’ drive from Mexico City, workers fret about Mr Trump’s threats to whack big tariffs on cars made in Mexico. One American carmaker—Ford—cancelled plans to build a $1.6bn plant in San Luis Potosí, some five hours farther north. It may have had other reasons for doing so, but workers in Puebla are not reassured.

“We’re frustrated,” says Ricardo Méndez, an equipment repairman who works for one of VW’s suppliers. He had expected his employer to send him to work at the new Ford plant. Between bites of spicy chicken taco, Santiago Nuñez, who works for another VW supplier, vows to boycott the American carmaker.

The anger and bewilderment in Puebla is felt across Mexico. Mr Trump’s promises to make Mexico pay for a border wall, deport millions of illegal immigrants and rip up the North American Free-Trade Agreement (NAFTA) were among the few consistent policies in his largely substance-free election campaign. He has not lost his taste for Mexico-bashing. In a press conference on January 11th, his first since July, Mr Trump repeated his claim that Mexico is “taking advantage” of the United States. Mexicans can only wait and wonder how he intends to act on that misguided notion.

The Trump presidency streaking toward Mexico is already causing problems. Inflation has started rising in response to the devaluation of the peso caused by his election. The central bank raised interest rates five times in 2016; it will probably have to continue tightening. After a sharp rise in public debt as a share of GDP over the past several years, the government must curb spending.

Over the past few months economists have lowered their forecasts for GDP growth in 2017, from an average of 2.3% to 1.4%. On January 1st the government cut a popular subsidy by raising petrol prices by up to 20%. Six people died in the ensuing protests.

If Mr Trump declares economic war, things could get much worse. The economy could stumble into recession, just as Mexico is preparing for a presidential election in 2018. Mr Trump’s pugilism increases the chances that Andrés Manuel López Obrador, a left-wing populist, will win. He would probably counter
American protectionism with the sort of self-destructive economic nationalism to which Mexico has disastrously resorted in the past. Vital reforms of energy, telecoms and education, enacted under Mexico’s current president, Enrique Peña Nieto, might be reversed.

Mexican officials think the Trump presidency poses two main dangers. The first is that the United States will renounce NAFTA, which it can do after six months’ notice, or simply shred it by putting up trade barriers. The second is that, as a way of forcing Mexico to pay for the wall, Mr Trump will carry out his threat to block remittances from immigrants in the United States. These inject some $25bn a year into Mexico’s economy.

The president-elect’s other big anti-Mexican idea, to dump millions of illegal immigrants on Mexico’s northern border, is seen as a lesser threat. Under Barack Obama, the United States deported some 175,000 Mexicans a year; Mr Trump will find it hard to increase that number. Republican plans to tax imports as part of a reform of corporate income tax would hit Mexico hard. The government sees that as a problem to be addressed by the United States’ trading partners in concert, rather than by Mexico alone.

Click here for full article on The Economist.

http://www.theyucatantimes.com/2017/01/analysis-trumpsteroid-to-impact-mexico-in-t-minus-4-days-the-economist/

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** Full Article**

Donald Trump’s presidency is about to hit Mexico

With a protectionist entering the White House, Mexico ponders its options

Jan 14th 2017 | PUEBLA

WHEN an asteroid hit Earth 66m years ago, wiping out the dinosaurs and 75% of plant and animal species, it hurt Mexico first. Donald Trump’s inauguration is far less frightening, but Mexicans can talk of little else.

Outside a massive Volkswagen (VW) factory in Puebla, two hours’ drive from Mexico City, workers fret about Mr Trump’s threats to whack big tariffs on cars made in Mexico. One American carmaker—Ford—cancelled plans to build a $1.6bn plant in San Luis Potosí, some five hours farther north. It may have had other reasons for doing so, but workers in Puebla are not reassured.

“We’re frustrated,” says Ricardo Méndez, an equipment repairman who works for one of VW’s suppliers. He had expected his employer to send him to work at the new Ford plant. Between bites of spicy chicken taco, Santiago Nuñez, who works for another VW supplier, vows to boycott the American carmaker.

The anger and bewilderment in Puebla is felt across Mexico. Mr Trump’s promises to make Mexico pay for a border wall, deport millions of illegal immigrants and rip up the North American Free-Trade Agreement (NAFTA) were among the few consistent policies in his largely substance-free election campaign. He has not lost his taste for Mexico-bashing. In a press conference on January 11th, his first since July, Mr Trump repeated his claim that Mexico is “taking advantage” of the United States. Mexicans can only wait and wonder how he intends to act on that misguided notion.

The Trump presidency streaking toward Mexico is already causing problems. Inflation has started rising in response to the devaluation of the peso caused by his election. The central bank raised interest rates five times in 2016; it will probably have to continue tightening. After a sharp rise in public debt as a share of GDP over the past several years, the government must curb spending.

Over the past few months economists have lowered their forecasts for GDP growth in 2017, from an average of 2.3% to 1.4%. On January 1st the government cut a popular subsidy by raising petrol prices by up to 20%. Six people died in the ensuing protests.

If Mr Trump declares economic war, things could get much worse. The economy could stumble into recession, just as Mexico is preparing for a presidential election in 2018. Mr Trump’s pugilism increases the chances that Andrés Manuel López Obrador, a left-wing populist, will win. He would probably counter American protectionism with the sort of self-destructive economic nationalism to which Mexico has disastrously resorted in the past. Vital reforms of energy, telecoms and education, enacted under Mexico’s current president, Enrique Peña Nieto, might be reversed.

Mexican officials think the Trump presidency poses two main dangers. The first is that the United States will renounce NAFTA, which it can do after six months’ notice, or simply shred it by putting up trade barriers. The second is that, as a way of forcing Mexico to pay for the wall, Mr Trump will carry out his threat to block remittances from immigrants in the United States. These inject some $25bn a year into Mexico’s economy.

The president-elect’s other big anti-Mexican idea, to dump millions of illegal immigrants on Mexico’s northern border, is seen as a lesser threat. Under Barack Obama, the United States deported some 175,000 Mexicans a year; Mr Trump will find it hard to increase that number. Republican plans to tax imports as part of a reform of corporate income tax would hit Mexico hard. The government sees that as a problem to be addressed by the United States’ trading partners in concert, rather than by Mexico alone.

It’s Donald. Duck!

Mr Peña’s instinct is to act as if Mr Trump is more reasonable than he seems. He showed his conciliatory side when he invited Mr Trump to Mexico City in August during the election campaign. The ersatz summit, at which Mr Peña failed to tell Mr Trump publicly that Mexico would not pay for his wall, so enraged Mexicans that Luis Videgaray, the finance minister who had suggested the meeting, was forced to quit. Now Mr Peña has brought him back, as foreign minister. But his tone has become tougher. Mr Peña now rejects Mr Trump’s attempts to influence investment “on the basis of fear or threats”.

To some, the rehiring of Mr Videgaray looks like a smart move. He is thought to be friendly with Jared Kushner, Mr Trump’s son-in-law, who is to become an adviser in the White House (on trade, among other things). Mr Trump himself praised Mr Videgaray after his sacking as a “brilliant finance minister and wonderful man”.

But Mexicans regard him with disdain. In turning to a member of his inner circle to manage Mexico’s relationship with the United States, Mr Peña missed a chance to hire someone with fresh ideas. Mr Videgaray “can have lunch at the White House”, notes Shannon O’Neil of the Council on Foreign Relations in New York, but she worries that his focus “will just be on the Oval Office”. To press its case that the United States has more to gain from working with Mexico than from walloping it, the government must talk to congressmen, state politicians and business leaders. It should also mobilise the 35m people of Mexican origin living in the United States.

Mexico thinks it has killer arguments for building on the partnership rather than destroying it. Some 5m American jobs depend on trade with Mexico; when Mexico ships goods north, 40% of their value comes from inputs bought from the United States. Officials hope that the new administration will opt for the fluffiest versions of Trumpism. Instead of repealing NAFTA, perhaps Mr Trump will renegotiate it, incorporating new standards for protecting intellectual property and the environment. Another tactic under consideration is to boost imports from Mexico’s NAFTA partners. The thinking is that reducing Mexico’s trade surplus with the United States, about $59bn last year, would give Mr Trump a victory he could sell to his protectionist supporters.

If conciliation fails, Mexico has few attractive options. In a trade war, it would suffer horribly. Raising its own tariffs would hurt its own consumers. Yet that does not mean that Mexico is defenceless. In 2009 it imposed tariffs on nearly 100 American products, including strawberries and Christmas trees, after the United States barred Mexican lorries from its roads to protect the jobs of American drivers. That got the attention of American politicians: the pro-trade lobby prevailed.

Mexican analysts are thinking about how the country might fight the next skirmish. Maize, grown mainly in states that voted for Mr Trump, will be a tempting target. The United States sold about $2.5bn-worth to Mexico in 2016. Faced with the loss of their biggest market, American maize farmers might press the White House to relent. On January 6th 16 American farming groups warned in a letter to Mr Trump and Mike Pence, the vice-president-elect, that disrupting trade with Mexico and other countries would have “devastating consequences” for farmers, who are already suffering from low prices.

For now, Mexicans are praying that Mr Trump will prove more temperate in office than during his meteoric rise. There is little evidence that will happen.

http://www.economist.com/news/americ...-donald-trumps