Trump election could freeze Mexico investment

Foreign investment in Mexico could freeze until President-elect Donald Trump specifies how he will enact his trade proposals, adding more uncertainty to an economy shaken by the U.S. political process.

{mosads}A slowdown in Mexican foreign direct investment, 35 percent of which comes from the United States, could slow down North American manufacturing and put at risk as many as six million U.S. jobs, reported Reforma.

“The plants that operate in Mexico, most of them use components from the United States. The opposite is also true. All American plants in the electronics, automotive, aviation, chemical and many other sectors use Mexican components,” José María Zas, president of the American Chamber of Commerce of México, told the newspaper.

Trump’s administration will focus on renegotiating or amending the North American Free Trade Agreement (NAFTA), according to a transition team memo, CNN reported Tuesday. Trump will order the Department of Commerce and the International Trade Commission to study the effects of potential withdrawal, and ask the United States Trade Representative to notify Canada and Mexico that the United States will seek amendments to the treaty, CNN added.

Trump railed against trade with Mexico in his campaign, promising to renegotiate or discard NAFTA, and to slap a 35-percent tariff on products built by U.S. companies in Mexico.

“The degree of integration within North America has increased dramatically since NAFTA 20 years ago, to the point where we’re not only trading with each other, but now producing many things together,” Jaime Serra Puche, a former NAFTA negotiator and Mexican secretary of Finance, told The Guardian.

“Mr Trump needs to understand that introducing protectionist measures would introduce obstructions and self-inflicted problems on the region including the U.S., as we would all lose competitiveness vis-a-vis the Chinese, Europeans and other regions,” Serra added.

Trump’s election has already hit the Mexican economy, sending the peso into a tailspin comparable to the 1995 devaluation that detonated the Tequila Effect, a financial crisis that spread throughout Latin America.

The 1995 financial meltdown also spurred the largest wave of illegal immigration in U.S. history. In 1995, 2.9 million Mexicans lived illegally in the United States; the undocumented Mexican population peaked in 2007 at 6.95 million.

Mexico, with an economy that is heavily reliant on exports, has signed 40 free trade agreements worldwide.

Unemployment in the country hit a low of 4 percent in the third trimester of 2016, according to official numbers. But the investment freeze will likely detain new hires and slow economic growth projections for 2017.

“For Mexico, the most likely scenario is that any previously planned investment will be on pause for a few months until the new rules, the new reality, are determined,” Doug Smith, business consultant at the Universidad of Texas at San Antonio’s International Trade Center, told Reforma.

–This report was updated at 12:05 p.m.

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