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KPBS Midday Edition

Mexico Is Anxious About What Trump Will Do To NAFTA

The headline on the left reads, "Peña Nieto: Yes to the Trans Pacific Partnership And A Modernized NAFTA." The headline on the right reads, "Peña: Modernize But No Renegotiation of NAFTA."
Lorne Matalon / Fronteras
The headline on the left reads, "Peña Nieto: Yes to the Trans Pacific Partnership And A Modernized NAFTA." The headline on the right reads, "Peña: Modernize But No Renegotiation of NAFTA."

Mexico Anxious About What Trump Will Do To NAFTA
Mexico Anxious About What Trump Will Do To NAFTA GUEST: Lorne Matalon, reporter

You're listening to Midday Edition I am Alison Saint. John in for Maureen Cavanaugh. Mexico's considering his options should President-elect Trump make good on his threat to withdraw from the North American Free Trade Act. Mr. Trump called NAFTA the worst trade deliver the first presidential debates. President -- Mexico is willing to, quote modernize NAFTA not renegotiate from scratch. From terrorist desk, Maryland has a report from Mexico City. -- Packing plants for export to the US. Killing NAFTA is observed she said -- absurd she said. NAFTA she said means no growth. Is the chilling effect on investment. Federico Estevez , a leading university whose alumni line the halls of power in Mexico. Away basically turned into an industrial economy on the basis of NAFTA. And industrial economy that is closely integrated with the US. The office of the US trade representative said Western Mexico is the second largest market for US exports all stimulated by NAFTA. Jonathan Heath, former chief economist at HSBC Mexico said nothing works because it is -- NAFTA works because it is a different kind of trade deal. Is not a trade agreement in a sense, I sell you this and you sell me that. It is more let's produce things together agreement. He said just look at cars. Maybe at the end of the day we are exporting more cars into the US than the US is exporting into Mexico but that car to start out with probably has 40% to 50% components that come from the US so it is so integrated into the two countries. If Mr. Trump scraps naff in Mexico not just roll over. Will have to be Mexico first, more self-reliance. What does that mean? The government will be forced to retaliate with tariffs on US goods should you asleep NAFTA and the politicians are already crafting legislation that could see Mexico withdraw from other treaties with the US or cut Mexico's increased work with US on immigration and intelligence. What else should we do? Trump has tried to levy a 35% tariff on cars ported -- imported from Mexico. Security analyst say tariffs on US imports Mexico are not the only possible retaliation. And there are ways of designing that do not hurt US economy and Journal -- in general but her specific districts and states. Mexican businesses they faced pressure from to reduce their investment profile in the US. In 2014 the latest data available, Mexican investment in the US was $17.7 billion. This is something the US public needs to know. Going after Mexico, harassing Mexico's not a free lunch. Here is the Secretary-General. These measures, it is easy to escalate them. You read it -- you read the retaliate with a measure and is not a good state of things. A campaign called Mexican unit is urging Mexicans not to buy US-made Christmas gifts prettily so Mexicans are listening. -- Make business gifts. So Mexicans are listening. We can live without them for the time being. We have reporter Lorne Matalon with us now. Thank you for joining us. The US relationship with Mexico is particularly important for border towns like San Diego so how might San Diego's economy be affected by changes in trade relations with Mexico? I think it would likely not be felt at home. Mexicans are still going to come and shop in places like the Fairfield mall, Mexican license plates will be visible in the parking lot. The will quit -- the real question mark for me is what will happen on the commercial side? Let's suppose for example that the United States withdraws from NAFTA and into the vacuum tariffs that do not exist suddenly do meaning possibly as the President-elect has threatened a 35% tariff on cars made by Ford in Mexico that are then imported into the United States. I do not think Mexico will roll over in that way. I think United States would become the possible target of terrorist imposed in return -- tariffs imposed in return. With their be a tit-for-tat where US businesses that one continued access would have to pay a premium for access to the Mexican market? President-elect from plus negotiating. He has made that clear about what our Mexico strongest bargaining chips if Trump sits down with skin president? Mexico was -- is about 1 million people. It fluctuates a bit but that is a lot of people. They have bank accounts. Might they be subject to attacks, some voices on the left are saying let's tax foreign bank accounts. What about US companies. You look at the thinking juggernaut in Mike Scott is called Banamex it is a legacy, Mexican bank second largest in Mexico it is fully owned by city Bank of New York. Maybe Mexico will say, we want all of our banks to be controlled at a minimum 31% by Mexicans and that is where these voices are floating ideas right now. Some of them are saying that is one of the things we should do right away to make a Mexico first policy things get cloudy in this relationship with respect US assets that Mexico could target, look look at Ford. For this active in Mexico, they will keep as you have heard a plant in Kentucky but they will ship production of the four focus to Mexico. The President-elect Trump has criticized those plans of as a mentioned has been floating the idea of a 35% tariff on the cars that Ward makes in Mexico brings into the US. These cars and many US-made auto-parts out into Mexico to make the cars now passed back and forth across the border tariff free. What happens in Fort is one example. One of Donald Trump's main articles -- it is cause job losses in the United States on the other hand what jobs has NAFTA created in the United States? The short answer a ton. Let's take one example. Where the world's largest makers named bimbo is active in 19 US states. They employed thousands of Americans, close to 20,000. It distributes household names integrated dates like surly, Arnold's, so let's just say for example the regulatory favors that NAFTA bestows on them are removed what they want to increase their investment footprint in the United States? United States President-elect has stigmatized companies that he had disagreements with. What happens if in both faces pressure from because they are a heavy weight of the Mexican business sector? What they are urged for PR purposes to back off and not increase their investment profile because they have plans to expand in this country? Market workers that they employ might be that much less secure. The US goods trade deficit with Mexico is $50 billion in 2015, the words they do so more to us than we did to them why is that? That is a great question and there is some perfectly good reasons why we run trade surpluses with some countries, deficits with others. That has to do with supply chains and comparative advantages. Of course we are a lot especially in the post-US election atmosphere that we are living in about America's trade deficits with China, Japan and Mexico. Let's look at the fact that, often overlooked point is that, it is not countries that trade picked his people and businesses that trade. Those engaged in trades by definition are in a when/win situation. Economics 101, satisfied seller and buyer. The fact that there is a deficit from an accounting standpoint, in no way changes the fact that what we call a trade deficit which is a fair terminology also reflects hundreds of thousands of mutually beneficial exchanges over certain periods. From an accounting standpoint, yes, we have run a deficit but that does not mean we are at necessarily an economic disadvantage because of it. What aspects of NAFTA the resources they might benefit from tweaking? Mexico's brand-new ambassador to the United States of the country is prepared to modernize NAFTA echoing his president and his foreign ministers at the same thing. One of the things that they want to tweak it Mexico in there looking at this as a possible opportunities to restart the guestworker system. The new ambassador said there is about a 40% chance of US content in express. Women talking about the auto, that would be movements across the border maybe six or seven times during the manufacturing process. He said as part of tweaking, modernizing NAFTA, the movement of workers across the border has to be reinstated so that not just auto-parts are going back and forth but there is a legal system to let people from Mexico, and work your. There is obviously a need otherwise there would not be an immigration issue big immigration reform debate I should separate that is the one concrete aspect to the tweaking and the modernization of NAFTA that might be on the table. I will say this, everybody from the street up to the president's office says we are not ready to renegotiate this. We are ready we want to work collaboratively to modernize it in that is as far as they are ready to go right now. Thank you for your insights country. -- Lorne .

Mexicans are anxious about the future of the North American Free Trade Act, and how the incoming administration of U.S. President-elect Donald Trump may seek to change or even withdraw from the agreement.

Mexican officials are now speaking with Asian nations about how trade between Mexico and Asia might change in a post-NAFTA era.

Mexican analysts have expressed concern that new investment may slow down due to uncertainty over the agreement.

"It's the chilling effect on investment," said Federico Estévez, a political scientist at Instituto Tecnológico Autónomo de Mexico, a leading Mexican university whose alumni line the halls of power in Mexico. "We've basically turned into an industrial economy on the basis of NAFTA."

NAFTA took effect Jan. 1, 1994, aiming to remove many tariffs and integrate major sectors of the economies of Canada, the U.S. and Mexico.

"It's going to have to be Mexico first, more self-reliant," Estévez said. He said Trump's victory is prompting some in Mexico, particularly on the left, to double down on their own nationalist goals, which include reducing economic dependence on the U.S.

Last month, governor with Mexico's Central Bank, Javier Guzman Calafell, told an audience that that the economic challenges for Mexico are pressing. He said that high inflation is hindering investment and complicating long-term planning.

Uncertainty about NAFTA's future is something that Xochitl Hernández understands.

Hernández manages a commercial greenhouse. She and her competitors, who depend on the U.S. export market, are clustered beside the canals of Xochimilco near Mexico City. In the greenhouse, pallets laden with lush, aromatic tropical flowers await pickup in refrigerated trucks.

"Ending NAFTA is an absurd idea," said Hernández, speaking in Spanish. "How can we grow without such an important instrument?"

Hernández said she feared having to decipher new rules and price points should the U.S. withdraw from NAFTA.

The Office of the United States Trade Representative said trade between Mexico and the U.S. amounted to $583.6 billion in 2015. Mexico was the second-largest market for U.S. export goods in 2015.

Mexican President Enrique Peña Nieto has said publicly that Mexico is willing to modernize NAFTA, but not renegotiate the treaty.

If NAFTA collapses, and if tariffs are imposed on Mexican imports in the U.S., security analyst Alejandro Hope said Mexico could retaliate with tariffs on U.S. goods.

Hope said major Mexican enterprises that are currently invested in the U.S. states might face pressure at home to temporarily halt any planned expansion of their U.S. investments.

"This is something that the U.S. public needs to know. Going after Mexico, or harassing Mexico, it's not a free lunch," Hope said.

Mexican Energy Undersecretary César Hernández Ochoa said he is confident Mexico will have an opportunity to make its case for the value of a regionally integrated economy.

"If protectionist measures are done, it's very easy to escalate them," Hernández Ochoa said in his office in Mexico City. "So you retaliate with a different measure. It's not a good state of things."

However, Hernández Ochoa said he fully expects the Mexico-U.S. economic relationship to grow, notwithstanding the rhetoric of the campaign.

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