Mexico May Call Trump's Bluff On NAFTA Renegotiation

It appears that there is a growing feeling within Mexican political circles that renegotiating NAFTA just may not be worth it. While Mexican President Nieto wants to expand any NAFTA renegotiation beyond just a discussion of trade to include migration, border control, and drug trafficking. There may be some interest in that approach within the Trump administration but Trump’s seeming desire for excessive tariffs on Mexican goods is likely to derail any agreement. Another strain of thought within Mexican politics is to simply let Trump rip up the NAFTA agreement and not even bother to negotiate a new one. That would leave trade between Mexico and the US to be covered by current World Trade Organization (WTO) rules. Estimates are that working under WTO rules would only raise US import prices by about 3% from where they are now. That is hardly enough to stop making Mexico an attractive place for manufacturing for export to the US. Jorge Castaneda, former foreign secretary, believes that Mexico actually has “a lot of chips to play” in negotiating with the US. His thinking is described this way in the Times article, “Let Mr. Trump pull the United States out of Nafta, he argues. Instead of stopping Central American migrants at its southern border, Mexico should let them through on their way to the United States. ‘And let’s see if his wall keeps the terrorists out, because we won’t,’ Mr. Castañeda added”. I’m also guessing that China would happily step up to the plate and possibly include Mexico in whatever trade deal will replace TPP without the US, especially if Trump’s belligerence toward China continues and increases.

A further complication for Trump is that the more he “punishes” Mexico, the further the Mexican peso falls, negating any positive effects of Trump’s policies for the US and making Mexico still an attractive place for investment. On the other hand, there will come a point when the peso falls so much that it encourages capital flight out of the country and creates internal chaos, threatening the stability of the government. Having a revolution in a country on our southern border will not be good for American business and will be a real threat to our national security. The question is how hard Trump is willing to push and how much businesses and their allies in the GOP are willing to fight him.