Mexicans: Trump wrong to focus on deficit
MEXICO CITY: In four days of North American free-trade talks opening here Friday, many numbers will be bandied about. To the dismay of Mexicans, one of them, US$63 billion (RM283.5 billion), stands above all the rest.
This is the size of the trade deficit in goods and services that the United States maintained with Mexico last year, and it’s the number that President Trump repeatedly brandishes when he declares NAFTA “the worst trade deal in history” and threatens to abandon the treaty.
But for Mexicans close to these negotiations, and for many American trade experts, it is simply the wrong number to worry about.
“We know that’s not the right index,” said Moises Kalach, one of the leaders of a private-sector group that advises the Mexican government on the talks.
“This is Econ 1 and we know that you cannot measure a trade agreement based on the deficit.”
The deficit is just one of the areas of disagreement expected to arise in the second round of NAFTA renegotiation talks, being held at the Hyatt Regency Hotel in the swanky Polanco neighborhood of Mexico City.
Technical teams from the United States, Mexico and Canada are working through issues including how to resolve trade disputes, whether to raise labour standards, what percentage of parts must be made in North America for a product to qualify for free-trade status, and how to modernise the 23year-old agreement for the era of e-commerce.
All that comes against the increasingly tense backdrop created by Trump’s repeated warnings in recent days that he is leaning toward cancelling NAFTA to negotiate a better deal for the United States.
In response to those warnings, the Mexican government said this week that it would walk away from the table if Trump starts the process to scrap NAFTA.
“We don’t think it would be the right path or a viable path to terminate the agreement just when we’re in negotiations,” Foreign Minister Luis Videgaray told reporters last Wednesday.
The focus on the trade deficit in goods and services - the amount by which a country buys more than it sells - frustrates Mexico for many reasons.
For one, the US$63 billion US deficit with Mexico is smaller than the American deficit with other countries, including China (US$309 billion) and Germany (US$67 billion), according to statistics issued by the Bureau of Economic Analysis at the US Department of Commerce.
But economists say the larger issue is that the trade deficit in goods and services is just one measure of the health of an economic relationship between two nations.
The figure does not reflect other factors such as the flow of capital investment between countries or the fact that the lower cost of inputs from Mexico helps US firms stay competitive and benefits American consumers with cheaper products.
“I have to be very clear,” said Jaime Zabludovsky, who helped negotiate the original NAFTA agreement in the early 1990s, and who is also part of the Mexican business advisory group.
“The trade deficit is a macroeconomic issue. It has nothing to do with trade policy.”
Focusing on the deficit, he added, “is a huge mistake.”
Many Americans, including Republicans, have made similar points in recent weeks.
Senator James Lankford, wrote in a recent op-ed in The Washington Post that trade deficits “are not always bad for US workers and consumers, nor should they remain the focus in NAFTA renegotiations.”
He said that if trade made Mexicans wealthier, they would probably buy more from the United States.
“That is why one of the best things that can happen to our economy is for other nations’ economies to grow,” he wrote.
Michael Camunez, a former US assistant secretary of commerce in the Obama administration, said that there has been “so much emphasis and hype” around the deficit, but that this number is “not necessarily the best measure of the success or productivity of that relationship.”
He noted that some 40 per cent of the content of a typical Mexican product comes from the United States - such as American-made parts that go into a car assembled in Mexico.
“You have to look at the relationship comprehensively,” said Camunez, who is now chief executive of Monarch Global Strategies, a firm that advises US companies interested in doing business in Mexico.
While a deficit is not necessarily a problem, though, some argue it can impact the type and number of jobs available, particularly in regions dependent on manufacturing.
Given the Trump administration’s focus on this issue, Mexican officials say they are willing to discuss it, as long as the solution does not harm Mexico’s economy.
The private sector group that Kalach runs has produced detailed charts showing which sectors in the economy contribute to the trade deficit - the auto industry, which has been a bright spot for Mexico’s economy, makes up the biggest portion - so they can react to various deficit-reduction proposals.
“If our commercial partners just want to insist on it,” Kalach said, “we’re going to try to make the best out of our arguments.”
Mexicans are looking for ways to increase overall trade in North America to possibly reduce the US deficit.
Mexico’s oil industry, which was opened to foreign investment in recent years, could play a role in decreasing the deficit in the future, some experts say.
Mexico could buy more natural gas from the United States, as its demand grows and domestic production declines, and foreign companies drilling for oil may need imported products.
“The US has a very large surplus in the energy trade with Mexico, which is an astonishing about-turn from where we were even five years ago,” said Duncan Wood, director of the Mexico Institute at the Wilson Center, a Washington think tank.
But few expect these talks to be easy. Faced with Trump’s recent threats, more Mexican politicians, including leftist presidential candidate Andres Manuel Lopez Obrador, who is leading in polls in advance of next year’s vote, have called on Mexico to walk away from the talks.
Dolores Padierna, a senator from the leftist PRD party who serves on a congressional committee that tracks the NAFTA talks, said: “My respectful recommendation to the Mexican government has been to leave NAFTA, to not wait for Donald Trump to throw us out, to leave in a way that is planned and gradual.”
She added that Mexico shouldn’t abandon free trade. “We are part of globalisation, but these markets can continue exporting to other countries.”
Mexican business leaders remain hopeful that the Trump administration will come to recognise the benefits of free trade for all three countries.
“I’m convinced that our officials who are in charge of this are going to exhaust every possible argument,” said Gustavo de Hoyos Walther, the president of the Confederation of Mexican Employers (COPARMEX).
But the threats by Trump “are hostile, and they are real.” — WP-Bloomberg
We know that’s not the right index.This is Econ 1 and we know that you cannot measure a trade agreement based on the deficit. Moises Kalach, one of the leaders of a private-sector group that advises the Mexican government on the talks