In trade war, Mex­ico has its weapons

If ten­sions rise, it could mir­ror U.S. tar­iffs or tax Amer­i­can firms abroad

The Washington Post Sunday - - THE WORLD - BY JOSHUA PART­LOW AND DAVID AGREN joshua.part­low@wash­ Gabriela Martinez con­trib­uted to this re­port.

mex­ico city — If the trade war is com­ing, how would Mex­ico fare?

That is the ques­tion that has pre­oc­cu­pied politi­cians and busi­ness lead­ers here since Pres­i­dent Trump won the elec­tion and be­gan pur­su­ing his agenda to im­pose tar­iffs on goods made in Mex­ico and to build a wall along the border.

Trump has made clear his dis­dain for the North Amer­i­can Free Trade Agree­ment, which has gov­erned com­merce on the con­ti­nent since 1994, and Mex­i­can lead­ers have said that if the terms of the rene­go­ti­a­tion did not fur­ther their in­ter­ests, they might walk away, as well.

A trade dis­pute could have painful reper­cus­sions here in Mex­ico. The coun­try re­lies heav­ily on the U.S. mar­ket: 80 per­cent of its ex­ports are sold there, and some economists pre­dict that a trade war could lead to a re­ces­sion and spur more mi­gra­tion north. Oth­ers note that un­rest might break out as the coun­try is al­ready tightly wound amid sharp in­creases in gas prices, the peso de­val­u­a­tion and the un­pop­u­lar­ity of its pres­i­dent, En­rique Peña Ni­eto.

But be­fore that hap­pens, Mex­ico will sit at the ne­go­ti­at­ing ta­ble with the Trump ad­min­is­tra­tion. While the United States is the stronger power, Mex­ico is not with­out lever­age if this dis­pute es­ca­lates. Top eco­nomic of­fi­cials have al­ready said that Mex­ico would “mir­ror” any ad­di­tional taxes or tar­iffs that the United States im­poses. For­mer of­fi­cials have said that Mex­ico could also tax cor­po­rate prof­its from the many Amer­i­can com­pa­nies with op­er­a­tions in Mex­ico.

Out­side of the eco­nomic realm, Mex­ico also has plenty of cards to play in ne­go­ti­a­tions with Trump. Last year, Mex­ico de­ported nearly 150,000 mi­grants bound for the United States, most of them from Cen­tral Amer­ica. With­out this co­op­er­a­tion, of­fi­cials pre­dict that the num­ber of mi­grants turn­ing up at the U.S. border could dou­ble.

“He has the Cen­tral Amer­i­can card, which he has men­tioned, and it’s a very pow­er­ful card,” for­mer for­eign min­is­ter Jorge Cas­tañeda said of Peña Ni­eto.

Af­ter a slow start, Peña Ni­eto’s ad­min­is­tra­tion has ramped up drug war co­op­er­a­tion with the United States over the past four years. His ad­min­is­tra­tion has ar­rested many high-rank­ing car­tel lead­ers, in­clud­ing twice cap­tur­ing Joaquín “El Chapo” Guzmán, the head of the Si­naloa car­tel, who was ex­tra­dited last week to New York. Mex­i­can au­thor­i­ties help fight the heroin epi­demic in the United States by go­ing af­ter lo­cal pro­duc­ers.

At the border, Mex­i­can of­fi­cials have been im­por­tant part­ners on a va­ri­ety of tasks, in­clud­ing gath­er­ing in­tel­li­gence on drug car­tels and fa­cil­i­tat­ing food in­spec­tions, of­ten work­ing side by side with their U.S. coun­ter­parts. Mex­ico has also ap­pre­hended for­eign­ers from other coun­tries that pose a po­ten­tial na­tional se­cu­rity threat and has al­lowed U.S. au­thor­i­ties ac­cess to them. That co­op­er­a­tion could change.

If the United States be­gins mass de­por­ta­tions of Mex­i­can im­mi­grants, Mex­ico could also re­spond by check­ing the doc­u­ments of the large pop­u­la­tions of Amer­i­cans who live in cities such as Aji­jic or San Miguel de Al­lende.

“It’s ev­i­dent that Mr. Trump wants vas­sals, not neigh­bors,” said Ser­gio Aguayo, a po­lit­i­cal an­a­lyst and pro­fes­sor at the Col­lege of Mex­ico. “What’s sur­pris­ing is that he doesn’t un­der­stand that Mex­ico has a good num­ber of mea­sures at its dis­posal.”

He added: “We de­pend on each other in many ways. More than Trump imag­ines.”

Many in Mex­ico seem to fear that for­eign in­vest­ment will dry up if the trade ten­sions es­ca­late. Trump’s warn­ings to U.S. com­pa­nies not to ship jobs to Mex­ico al­ready prompted Ford to can­cel plans for a plant in Mex­ico and for Car­rier, the In­di­ana-based com­pany that makes heaters and air con­di­tion­ers, to shift some jobs away from Mex­ico.

The auto in­dus­try in par­tic­u­lar has been a bright spot for Mex­ico, and dis­rup­tion in that man­u­fac­tur­ing base could spell se­ri­ous trou­ble.

“The big dilemma is a lack of cer­tainty or sta­bil­ity,” said one per­son in­volved in the auto in­dus­try who spoke on the con­di­tion of anonymity to speak can­didly. “If the U.S. places tar­iffs on auto im­ports, then it is a real game-changer.”

The per­son added: “It seems as though we are now in a wait­ing game to see just how se­vere the sit­u­a­tion be­comes.”

With­out NAFTA, economists said, Mex­ico could lose some of the ad­van­tages that come with its lower-cost la­bor. With new tar­iffs on Mex­i­can ex­ports, “we just be­come less at­trac­tive to for­eign in­vestors be­cause that mar­gin is too small,” said Fed­erico Estevez, po­lit­i­cal science pro­fes­sor at the Au­ton­o­mous Tech­no­log­i­cal In­sti­tute of Mex­ico.

“On top of that, you have [Trump] bad-mouthing us all the time,” Estevez said.

Economists have noted that the steep de­val­u­a­tion of the Mex­i­can cur­rency makes its ex­ports more com­pet­i­tive around the world. And im­pos­ing tar­iffs on Mex­i­can goods will raise the prices in U.S. stores. Mex­ico has free-trade agree­ments with dozens of other coun­tries and could look to ex­pand its re­la­tion­ships out­side of the United States if that mar­ket turns in­ward.

“It’s very cu­ri­ous that he would want to pun­ish the Amer­i­can con­sumer,” Luis Fon­cer­rada, the di­rec­tor of an eco­nomic stud­ies in­sti­tute in Mex­ico City. “Mex­ico can com­pen­sate with ex­ports to other coun­tries, deep­en­ing those agree­ments.”

That Trump seems not to be con­sid­er­ing the ram­i­fi­ca­tions of a trade war with Mex­ico might be the most wor­ri­some as­pect of the cur­rent cri­sis, said Fer­nando Turner Dávila, sec­re­tary of the econ­omy in the in­dus­trial state of Nuevo Leon.

“This is wor­ry­ing not only for Mex­ico but for the en­tire world,” he said. “They should be scared that there is no con­tem­pla­tion in the pres­i­dent of the most pow­er­ful coun­try in the world.”

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