Page 77 - STRATEGY Magazine

ity of life, and businesses exist in a “culture of compliance, of paying taxes, of quality and continuous improvement and innovation,” he says. “We now compete worldwide and we win worldwide.”
THAT’S NOT ALL
The Latin American nation has further extended its reach with 32 Reciprocal Investment Promotion and Protection Agreements (RIPPAs) with 33 countries, and nine Economic Completion and Partial Scope Agreements within the frame- work of the Latin American Integration Association (ALADI). Mexico also participates in multilateral regional organizations and forums such as the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation (APEC), and the Organi- zation for Economic Cooperation and Development (OECD).
All told, through these various agreements, México City has successfully negotiated access to a global market of 1.3 billion potential customers comprising 58 percent of the world’s GDP and 53 percent of all global commerce.
One potential disappointment for Mexico is the Trans-Pacific Partnership (TPP), the fate of which has been imperiled by the United States’ exit from the agreement. A fully functioning TPP would allow Mexico to shore up its economic and com- mercial presence in 10 key markets in the Asia-Pacific region, one of the most dynamic in the world. World leaders are
still optimistic that they can salvage the partnership. Juan Carlos Baker, a TPP negotiator for Mexico, attended a min- isterial meeting on the agreement in Hanoi on May 21, 2017. “Mexico and Japan have a very important role to play,” he said, regarding efforts to pull the remaining 11 signatories together.
IS NAFTA NEXT?
Few people in the world are unaware that the new American president, Donald Trump, triumphantly soared into office with promises to scale back international trade and promote an economic agenda of “America first.” Nonetheless, Mexico’s Secretary of Economy, Ildefonso Guajardo Villarreal, remains optimistic. Guajardo notes that fewer opportunities with the United States mean more chances to cooperate with China. “If one power exits a space,” he says, “you can bet another will step in.”
Although initially declaring his intention to withdraw from NAFTA, Trump recently opened the 90-day discussion peri- od with the U.S. Congress that will trigger the renegotiation of the treaty. Signed in December 1992 by Mexican President Carlos Salinas, Canadian Prime Minister Brian Mulroney, and U.S. President George H. W. Bush in their respective capitals, NAFTA has been in place for the past quarter century.
Despite American criticisms of the agreement, Mexico and Canada together buy more made-in-America goods than any other countries in the world under NAFTA. Since the agree- ment’s implementation, U.S. states such as Illinois, Ohio, Michigan, and many others have experienced a rising tide of exports to their neighbor to the south. In 30 U.S. states, either Canada or Mexico ranks as the first- or second-largest export market.
Altogether, trade between the three partners has tripled since the creation of NAFTA, and integration between the countries has ensued. Canada and Mexico share nearly equal portions of NAFTA trade with the United States, with Canada at 15 percent for 2016 and Mexico at 14.4 percent. Current- ly, most of Mexico’s own exports go to the United States, and
in 2016, the volume of these exports was a startling 15 times higher than in 1995, three years after the treaty was conclud- ed.
Throughout his campaign, Donald Trump referred to NAFTA as “the worst deal in the world.” “We all knew that was wrong,” asserts William Waggoner, the President & CEO of MexicoPetroleum Company. He extols NAFTA as a deal with many benefits for all three parties, noting that hun- dreds of millions of dollars cross its borders every day. “Sure, there are probably side agreements to NAFTA that need to be tweaked,” he acknowledges, “but I don’t think the core will ever be touched.”
Nonetheless, economists have concluded that some Mexican export sectors, despite the stimulus effect of NAFTA, have in- deed been tamed by lower demand in the United States. Ex- ceptions to this decline can be found in certain service sectors, particularly financial services and insurance.
THE WAY THINGS STAND
“From Mexico’s point of view, opening tariffs will be a big mistake,” said Guajardo recently. Rather than progress, tar- iffs would represent a step backward that would harm both countries’ economies. He warns, “If anything is done on one side, it has to be compensated with actions on the other side.” Thierry Mahé, the General Manager of CNH Industrial–FIAT Group, goes even further: “Trump’s protectionism is not fea- sible. It will cause the
world economy to break
down.”
As Guajardo observes,
recovery is “fragile,”
and a review of Mexi-
co’s economy in 2017
reveals a mixed bag.
Trade continues to be
the engine that drives
Mexico’s economic ad-
vancement. The econ-
omy has picked up in
the first quarter, with
an annualized GDP
growth rate of 2.7 per-
cent. Sectors that have
decelerated have been
mostly those focused on
the domestic market,
like utilities, services,
and public administration. Cars, by contrast, are doing great, and the automotive industry has undeniably fared well in re- cent years. The sector is responsible for 20 percent of foreign direct investment into the country, and automotive businesses export fully 80 percent of their production.
“Thanks to President Trump, Mexico will be forced to en- hance its trade relationships with Europe, Canada, and the rest of the world, and not con- centrate so much on the Unit- ed States.” —Fernando de Ovando, Partner, Jones Day
All told, economists find that as a result of international trade, Mexico has had the opportunity to develop in its areas of com- parative advantage. David Ricardo, the classic economist who expounded upon the benefits of free trade, would be pleased. The Economic Complexity Index (ECI), a measurement that explores a country’s accumulated knowledge as expressed
in industrial composition, reveals that Mexico’s productive capacities and knowledge have indeed increased. Even follow- ing a global recession, international trade has been good for Mexico.
strategybg.com 75