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How Trump presidency could affect Mexico

by Alejandro Lomelí Viramontes.

The world waited anxiously for the result of the United States 2016 presidential election. As Donald Trump’s probabilities of becoming the leader of the world’s most powerful nation grew, so did the astonishment and, in many cases, the worries among American citizens and people around the world. Whatever his actions and decisions may be, the consequences will be felt inside and outside the US, and there is a specific country in which they will be felt quite strongly: Mexico.

Along his campaign, Trump has tagged Mexico as a trade enemy, as a source of drugs and criminals, and as one of the main causes of the loss of American jobs. During the past months, he has pledged to build a wall along the border, make Mexico pay for it, cancel the North American Free Trade Agreement, prevent American companies from investing in Mexico, and deport millions of immigrants.

Trump’s promises dealing with reality

It’s true that Trump may face obstacles to implement everything he has said. As in any other democracy, the legislative and judicial powers, as well as civil society and corporations, can oppose his proposes policies. However, as ridiculous or impossible as they might sound, his electoral promises have now a real possibility of happening and cannot be taken lightly anymore. If he manages to apply them, they would represent a radical shift on the US-Mexico relations and, above all, would pose a direct threat to Mexican economic, political and social stability.

To begin with, Trump has pledged to build a wall and make Mexico pay for it. This was one of his central promises during his campaign, and was also one the most popular among his supporters. As everyone expected, the Mexican government assured that they would not give a single peso for its construction. Nonetheless, Trump has proposed other means to ensure its payment, all of which would have serious implications for the country.

One way, he warned, would be to cut the flow of remittances from the US to Mexico. More than 11 million Mexican immigrants live nowadays in the US, and Mexico’s economy heavily relies on the money they send back to the country. Remittances are one of Mexico’s main sources of foreign currency, currently represent about 2% of the country’s GDP, and constitute an important part of the income many families depend on. Blocking them would therefore cause financial instability, a significant shrinkage the overall economy, and the submersion of millions of families into deeper poverty.

Other proposed measures include increasing the price of visas for Mexican citizens, and even cancelling them. The Mexico-US border is the most transited in the world; millions of people, especially in border cities, cross every day from one country to the other to work, study, visit relatives, and for other activities. Any increment in fees or stricter requirements for an American visa or a border-crossing pass would have severe impacts on those people whose job, education, and even family life depend on their ability to move across the border.

A threat to the North American Free Trade Agreement

He has also promised to cancel North American Free Trade Agreement and repeatedly called it the worst trade deal ever made anywhere in the world. If he manages to do so, he would undermine the foundations of Mexico’s current economic system.

Since the entry into force of the agreement, trade between Mexico and US has grown exponentially. Today, more than 80% of Mexican exports go to the US, and the exporting sector amounts for more than one third of the country’s GDP. Also, in regards to foreign direct investment, NAFTA has boosted the setting-up of American companies in Mexico, which have become an important component of the country’s industrial production.

Cancelling the agreement would allow him to impose high tariffs on Mexican products entering the US, thus reducing exports, and American companies would have fewer incentives to invest in Mexico. In a country whose economic system is highly export-based and dependent on foreign investment, the consequences would be disastrous.

Also, without NAFTA not only would Mexican products be more expensive for American consumers, but also the other way around. And since American products constitute a significant part of Mexican private consumption, any tariff increase on US imports would lead to high levels of inflation.

And finally, the deportation of millions of illegal immigrants back to Mexico would further increase unemployment, with its respective implications.

To sum up, Mexico could fall into a deep economic and social crisis.

This is all, of course, assuming that Trump will actually implement his promises during the next four – or maybe even eight – years. But even if he doesn’t, his presidency will anyway be a period of big changes and uncertainty. As financial markets react shockingly and the Mexican peso suffers its steepest drop in two decades, Mexicans have started to prepare for what lies ahead. For many, this is also an opportunity to rethink Mexico’s long-lasting relation with the US, and to build a more diversified, internally developed, and independent economy.

 

Alejandro Lomelí Viramontes, associate member of nextPA from September 2016, is enrolled in the Bachelor in International Relations at the Monterrey Institute of Technology and Higher Education, Mexico and is now an Exchange Student at Bocconi University, Milan. 

Riproduzione riservata © nextPA

How Trump presidency could affect Mexico

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