Mexico's Ildefonso Guajardo on dealing with the Trump administration

Mexico's Ildefonso Guajardo on dealing with the Trump administration

Mexico Economy & Policy Corporate & Sovereign Strategy US Funds Interviews

With the future of US-Mexico trade relations uncertain, Mexican officials are gearing up for talks with the administration of US President Donald Trump that could dramatically reshape ties between the two countries.

Tensions heightened in January, when Mexican President Enrique Peña Nieto cancelled a White House visit after Trump continued to insist that Mexico pay for construction of a wall along the US-Mexico border.

Trump’s pledges to build the wall and renegotiate the North American Free Trade Agreement (NAFTA) have cast uncertainty over the Mexican economy, pushing the peso near record lows and clouding the investment environment.

Mexico's Economy Minister Ildefonso Guajardo and Foreign Minister Luis Videgaray led a delegation of officials that traveled to Washington and met Trump administration officials to lay the groundwork for talks on immigration, security and trade. 

As Mexico readies to reopen NAFTA talks, scheduled to begin later this year, the country has moved to expand bilateral trade deals with Argentina, Australia, Brazil, the European Union and New Zealand.

Guajardo discussed some of the latest developments in the US-Mexico relationship and their implications for the Mexican economy. The following is an edited transcript of his responses to written questions submitted by LatinFinance.

LatinFinance: What is your reaction to the idea floated by the White House of a 20% tax on imports from Mexico?

Ildefonso Guajardo: Although we’re aware there are proposals in the US Senate, the Trump administration has yet to clearly define where it stands on the issue. Now, if this moves forward, it would be counterproductive because it is consumers who will end up paying for the tax. That could potentially reduce demand and generate less jobs, affecting economic growth.

If the US were to implement the 20% tax, it would be in violation of the rules of the World Trade Organization.

LF: How would a 20% import tax impact Mexico's economy?

IG: It would be a serious problem, but not only for Mexico. Exports from other countries would also be affected, including the US. You have to remember, on average, Mexican exports include supplies from the US. So this would only deepen the uncertainty we're seeing now.

LF: Could you tell us about your meeting in January with Trump administration officials in Washington? What was the most significant outcome?

IG: During our visit, both teams showed interest in establishing a dialogue based on fortifying our bilateral relationship. In terms of NAFTA, we focused on identifying areas of common interest and possible ways to advance them.

LF: What’s your message to foreign investors right now?

IG: One of the priorities of the federal government is to continue improving our economic competitiveness and internal sources of growth. In order to do that, we are strengthening our economic pillars. For example, we’re working to lower our debt-to-GDP levels. We’re also working on several regulatory changes to lower the tax pressure on business, including taxes on imports and exports.

For its part, Mexico’s central bank is keeping a close eye on inflation, with a goal of keeping it in range in the medium and long term. Mexico is a highly competitive destination to invest in and from which to export to global markets because of its privileged geographic location, qualified workforce and an access to a large number of free-trade agreements with countries around the world.  

LF: We’ve recently seen some US automakers reverse decisions about their production plans in the country. What incentives can you offer? How are you considering to avoid similar decisions from other automakers?

IG: Under no circumstances will the Mexican government interfere with the decisions that private companies make. What we can do is reiterate our commitment to free trade and to guarantee certainty for any investments made in Mexico.

Mexico will continue to be a competitive production platform and offer the opportunity to export to global markets, including preferential access to 46 countries around the world.

LF: Are there parts of NAFTA that Mexico would like to see changed?

IG: Mexico clearly understands that we can include new areas. When NAFTA was negotiated 23 years ago, issues like digital commerce, intellectual property and the participation of small and medium-sized businesses in international commerce were not priorities.

At the time, environmental and labor issues were also excluded from NAFTA because our country didn’t believe it was the right time to implement those changes. Energy issues were also excluded because of constitutional limits.

Today these issues are indispensable, so the process of renegotiating NAFTA gives us an opportunity to modernize and strengthen the trade pact, taking into account new business realities, and allows for free trade to continue being the vehicle for growth and development in the region.

 

LFMarchApril2017 
This article was published in the March/April 2017 issue of LatinFinance magazine. Read more from the latest magazine issue here.

LF: Is Mexico maintaining its economic growth forecasts for this year? What sectors will drive growth?

 

IG: According to the latest forecasts, the three NAFTA countries are expected to grow at similar rates, although at levels lower than forecast global economic growth.

Mexico’s economy is expected to grow 1.7% this year and 2% in 2018. However, given the uncertainty in the markets about Britain’s exit from the European Union and the lack of clarity in the Trump administration’s policies, we should react cautiously to those forecasts. Uncertainty will be the only certainty over the next few months.

LF: Do you plan to have plans to meet again with officials from the Trump administration?

IG: First [Trump’s] nominees for commerce secretary and trade representative have to be confirmed. Once that happens, we will reach out to them. In the meantime, we are focused on the process of consultation with our productive sectors, both before any negotiations over NAFTA and continuously throughout the negotiations.

LF: Looking forward, what are the government's economic priorities?

IG: As President Enrique Peña Nieto has announced, the economic priority over the next two years will be maintaining and strengthening the internal market.

In order to do that, we have stepped up efforts to protect the economies of ordinary Mexicans, stepping up our regular monitoring of consumer prices for basic goods. We’ll obviously continue working to put our investment plans in place. One of the federal government’s priorities is also to strengthen Mexico’s presence in the global economy by diversifying [its trade partners]. LF