Mexico rattled by uncertainty in lead-up to Trump inauguration

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Mexican leaders are scrambling to prepare the country’s economy for a drastic change in the relationship with the United States, amid uncertainty over how President-elect Donald Trump will follow through on his campaign promises to overhaul bilateral trade, immigration and investment policies.

The shaky situation is accentuating rifts in the country’s political and economic circles. 

“We are worried that President Enrique Peña Nieto and his team are minimizing or ignoring the risks [of a Trump presidency],” said Juan Francisco Torres Landa, managing partner in Mexico City for multinational law firm Hogan Lovells.

“We don’t see a concrete plan.”

On the economic front, Mexicans are most concerned about Trump’s promise to renegotiate or scrap the North American Free Trade Agreement (NAFTA). Under the 22-year-old agreement, Mexican manufacturing has been modernized and the country has become a global trade powerhouse, but it still sends a large majority of its exports to the United States.

According to the Observatory of Economic Complexity, 73 percent of Mexico’s exports went to the United States in 2014.

The private sector, government and politicians on both sides of the spectrum have proposed different approaches to dealing with the Trump administration, but most agree there’s not much the country can do until the next president implements his policies.

“We have to prepare based on what he said, but wait and see what we can negotiate,” said Amy Glover, director of the Mexico Practice at Washington consulting firm McLarty Associates.

A Mexican government official with knowledge of the situation told The Hill that President Enrique Peña Nieto’s administration has laid out several scenarios to respond to potential actions by the Trump administration.

“You can draw an outline based on potential scenarios but you can’t draw the specifics until that scenario is played out,” he said.

Opposition leaders have lashed out at the government’s strategy so far.

The government “is stunned, fearful, without the capacity to respond, with weak people responsible for foreign affairs and trade, when Mexico needs to present a position of firmness, dignity, patriotism and act intelligently,” Reforma newspaper quoted Miguel Barbosa, the leader of the center-left Party of the Democratic Revolution (PRD), as saying Friday.

Investors are also taking a cautious tack, and some projects have already been delayed. 

Foreign direct investment in the first three quarters of 2016 fell by 23.2 percent compared to the same period in 2015, according to government figures.

“Investors loathe uncertainty, and what Donald Trump has done is throw a huge amount of uncertainty on the plate,” said Michael Camúñez, a former assistant secretary of Commerce in the Obama administration who now runs ManattJones Global Strategies, an international investment consulting firm.

“A lot of folks are just hanging back to wait and see,” said Camúñez. “My advice is to take a deep breath.”

But some Mexican civil society and private sector leaders say a more active approach is necessary to convince the Trump administration and Congress of the benefits of the bilateral relationship.

“Our complaint is very clear, saying ‘we can’t be asleep,'” said Torres Landa. 

“They’re under the impression that we shouldn’t anticipate [Trump],” he said. “I think they’re wrong.”

Torres Landa pointed to the Organization of Petroleum Exporting Countries (OPEC), a consortium of major oil exporters, which announced a deal last week with Russia to cap oil production. The move was seen as a response to low oil prices due to increased U.S. shale oil production, and could bolster the economies of U.S. rivals like Venezuela and Iran.

“They’re taking action,” said Torres Landa. “The first thing to do is a very profound, very profuse informational campaign.”

Torres Landa suggested an intense lobbying push to convince Congress that Trump’s campaign rhetoric, if enacted as policy, would lead to a costly trade war.

But so far, long-term investors have stayed the course.

The Mexican government reported Monday that gross fixed investment in imported machinery grew 5.7 percent in August, the largest growth in nine months.

“In energy, it’s full steam ahead,” said Torres Landa, “because it’s long-term investment.”

Two U.S. oil companies, Chevron and Exxon, were assigned exploitation rights for deep water drilling Monday, although most contracts went to a consortium led by Chinese companies.

With U.S.-Mexico ties teetering, many in the country are proposing a pivot to China and other emerging markets to lessen dependency on the United States.

“Mexico has some 46 free trade partners,” said Camuñez. “It is a very free trade oriented country, they are already taking steps to open up new trading partners in Asia.”

“China is very interested in Mexico,” he added.

Recovering from a sudden break with the United States would be difficult but possible, analysts said. For many, the real concern is the potential for an internal political backlash.

Both Camuñez and Torres Landa said Trump’s election could drive Mexican voters toward the country’s nationalist hard left. 

“There is a plausible scenario where the Trump presidency gives rise to an anti-American ethic,” said Camuñez.

Andres Manuel Lopez Obrador, a controversial left-wing leader and runner-up in the last two presidential elections who promised last month to build “the kingdom of justice and brotherhood” in Mexico, has gained steam since Nov. 8. 

Lopez Obrador, commonly known by his initials AMLO, has resonated with some voters for his nationalistic rhetoric and dismissal of Trump’s importance to the country. He is the leading candidate in most polls ahead of the 2018 presidential election.

“AMLO and Trump together in some ways is a perfect storm,” said Camuñez.

Torres Landa said Lopez Obrador could pursue economic policies in response to a “structural problem” in Mexico’s free trade vocation. 

“It has generated great successes, but has also generated this economic profligacy in which great sectors of the population are unprotected,” he said.

Lopez Obrador’s response to that problem, said Torres Landa, could be popular with Mexican voters eager for change, but could lead to Venezuela-style economic chaos.

“I think the United States will miss Castro,” he said.

And some in the United States are advocating for economic policy in the region to take a more holistic view.

Howard G. Buffett, the philanthropist and son of billionaire Warren Buffett, said last week at a forum that American protectionist measures could lead to greater violence in, and emigration from, the region.

“[If you] don’t realize the impact it may have on systems and processes in economies that have been built on what the changing dynamics are with US businesses, and you ignore that in the countries south of us, there are going to be more consequences,” said Buffett.

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