Tag Archives: Mexico

Trump Getting Ready to Pull US Out of NAFTA

Reports have emerged that the Trump administration is taking concrete steps to pull the United States out of the North American Free Trade Agreement, also known as NAFTA.

According to Politico, two White House officials stated that a draft order to withdraw from NAFTA has already been submitted for the last stages of review, and could be released by the end of this week, or early next week.

The order was written by Trump’s head of the National Trade Council, Peter Navarro, in corroboration with the White House chief strategist Steve Bannon. It is still unclear what the order states, but the effect on trade can be predicted by an examination of the top 20 exports arriving from Mexico to the US.

In January Capital Economics’ chief emerging markets economist Neil Shearing published a chart in a memo to clients graphing the top 20 exports from Mexico according to their 2015 US dollar value.

About 25 percent of Mexico’s total exports to the US, by far the largest slice, came from the auto sector, valued at about $80 billion. The next three items are electrical components, food, and computers, together valued at about $55 billion.

“The upshot, then, is that targeted measures imposed on the vehicle, electronics, and food and beverage sectors would hit Mexico’s economy especially hard,” wrote Shearing. “Similarly, in the event of a blanket tariff across all sectors, producers in these areas would be among the hardest hit.”

In wake of the reports that Trump is on the verge of pulling out of NAFTA the peso is crashing, down over 2.2 percent at 19.2704 as of 12:53pm Wednesday afternoon.

Ford Moving Small Car Assembly Off-Shore

Underscoring the difficulty US automakers have making fuel-efficient cars stateside, Ford Motor Co, announced it will be moving its Focus compact cars and C-Max hybrids out of its Michigan Assembly Plant near Detroit. The move is scheduled for 2018.

The announcement has placed worry about the long-term viability of what is one of Ford’s largest US manufacturing plants. It also casts a pall over a meeting, scheduled for just a few days from now, between Ford executives and heads of the United Auto Workers Union to forge a new labor agreement. It is expected that the UAW will ask for higher wages and keeping the status quo on healthcare. Ford has proposed cuts in healthcare benefits to trim expenses.

The company did not announce where production of the Focus and C-Max will move to. Mexico is a possibility since less than three months ago Ford said it was planning to spend $2.5 billion on transmission and engine plants in Mexico. The company also has assembly plants in Mexico which build midsize Fusion sedans and small Fiestas.

Kristina Adamski, spokeswoman for Ford, said that all decisions Ford makes is based on the necessity to keep the company competitive.

“We actively are pursuing future vehicle alternatives to produce at Michigan Assembly and will discuss this issue with United Auto Workers leadership as part of the upcoming negotiations,” she said.

Trade War with Canada and Mexico Looms Over US

Angered by US laws requiring that meat sold to consumers be labeled with the name of country to animal was born, grown and killed, Canada and Mexico won a formal complaint they had lodged with the World Trade Organization against the US requirements.

Mexico and Canada say these rules discriminate against imported meat, and are threatening to take steps to retaliate in what could become a full-blown trade war.

“Our governments will be seeking authorization from the WTO to take retaliatory measures against U.S. exports,” stated the Mexican and Canadian ministers for trade and agriculture.

Canada has already published a list of potential products to target for trade sanctions, such as wine, chocolate, ketchup and cereal. Mexico has not released a similar list, yet.

The beef and pork industries in Canada point to the fact that the US restrictions increase their expenses, reducing livestock exports. They say they have lost an estimated $1 billion a year in revenue as a result of this law.

Michael Conaway the Republican chairman of the House of Representatives Committee on Agriculture would like to see Congress do something fast.

“It is more important now than ever to act quickly to avoid a protracted trade war with our two largest trade partners,” Conaway said.

Republicans have a majority in the Congress, but they will most likely come up against a strong Democratic response to leave the labeling regulations in place. The top Democrat in the Committee on Agriculture, Collin Peterson, said he would oppose a change in the law. He added that he believes there are still steps that can be taken at the WTO before making any big changes.

The focus of the dispute is a law enacted in 2009 that requires retail outlets to label meat and pork in a way that gives consumers more information about the safety and the origin of the meat they purchase and eat.

Mexico Moving Into First Place as Top Exporter of Cars

Hondas on the assembly line in Mexico
Hondas on the assembly line in Mexico

Over the past twenty years, and especially the last ten, Mexico has been making major progress as a major exporter of cars and trucks to the United States. Although Japan and Canada still control the market share, Mexico has been making inroads that point to them surpassing and overtaking these wealthy first world countries as a major automobile supplier.

A new Honda plant is due to open later this week in Celaya, Mexico, in the central state of Guanajuato. At a cost of about $800 million, the factory will produce about 200,000 Fit hatchbacks per year. That will bring the total number of cars exported to the US from Mexico up to 1.7 million in 2014. That is about 200,000 more cars than the US will buy from Japan in 2014. And when another new plant begins production a week later, Mexico will take over Canada’s number spot as the largest seller of cars to the US in the world by 2015.

“It’s a safe bet,” said Eduardo Solis, president of the Mexican Automotive Industry Association. “Mexico is now one of the major global players in car manufacturing.”

The progress Mexico has been making can be traced back to the passage of the North American Trade Agreement, (NAFTA) which went into force on January 1, 1994.  Back then Mexico made only 6 percent of all the cars manufactured in all of North America. Today they produce 19 percent. Since 2007 total Mexican car production rose 39 percent, to almost 3 million cars a year. The value of those exports to the US has soared from $40 billion per year in 2007 to $70.6 billion today.

The Mexican car industry is now the country’s major source of foreign currency, passing oil exports and cash Mexican migrants to the US send back home.

Mexican President Tells Business Reforms are Needed

President Enrique Peña Nieto
President Enrique Peña Nieto

This past week Mexican businessmen joined together at the annual Mexican Business Summit to discuss the latest business trends in this Central American country.
In a speech delivered by President Enrique Peña Nieto, the message coming from the leader was ‘if fiscal reform were not hurting it would be a sign that the bites aren’t deep enough.’

When Nieto came to power last September the Mexican business community felt it was on a honeymoon with its new leader. But the love affair is in a cooling stage now as the President seems to be behind a new tax-bill which was approved by Mexico’s lower house on October 18.

Mexican businessmen argue that the new fiscal reforms such as a junk-food and soft-drink tax will hurt business or deter investment. Whether their arguments will persuade the Senate is yet to be seen; the vote is scheduled for October 31. But a new argument is arising from business in their struggle against reform: they claim that the tax reforms show the government, which came to power a year ago come December on the promise of balancing the budget, has become corrupt.

What the tax reforms really signify, they say, is that the love affair with fiscal responsibility that has restricted Mexican economic policy ever since the peso crisis of 1994 may be just about over.