The President of the United States Donald Trump has been vocal about his displeasure in the NAFTA deal. In fact, one of his campaign promises is that he will cancel or modify the deal that is unfair to the Americans. Immediately after becoming the President, Trump has ordered building an expensive wall on the American-Mexican border and he has also started his plan to cancel NAFTA deal. Mexico’s economy thrived after the formation of NAFTA as the protectionist country opened its doors to the world. The huge exports made imports cheaper for the country. Now that NAFTA is proposed to be canceled, it will have serious effects on Mexico’s economy.
In 1992, the Mexican team which negotiated the NAFTA deal was applauded for its economic credentials. Mexico was a protectionist country with too much focus on making the products in Mexico which were not of high quality. The idea of competitiveness was introduced after the launch of NAFTA deal. The economy which was closed for so long flourished beautifully after it was open to foreign investments. It provided high paying factory jobs for Mexicans. While several farmers left their land to look for a good job in cities or move to the US, it helped the economy to grow considerably.
The economic experts who coined the NAFTA deal are extremely worried about Mexico’s reactions to the cancellation of NAFTA deal. The bigger border tax that Trump proposes will affect the Mexican economy more than the US economy. Peso is weakening in the forex market and even a 25% border tax won’t have a big impact for the USA. On the other hand, Mexico shouldn’t raise its tariffs because it would make the imports expensive. Mexico exported $18.5 billion worth of pickup trucks to the USA and imported $18 billion worth of agricultural products from the USA.
In the current economic situation, Mexico must maintain its near-zero level tariffs with the USA. This will only keep the imports affordable. Politically, this is difficult because everyone in the nation expects Mexico to retaliate Donald Trump. The nationalistic impulse of the people are kindled by the actions of Trump and the president is also forced to take some action. Recently, twitter tag #NoCompresUSA (Don’t buy USA) trended among Mexicans and the movement has gained 3 million followers.
The governments after the NAFTA deal failed to promote domestic investment as they concentrated more on increasing the exports to improve the economy. In an attempt to hold on to the free trade principles of the country, Mexico is hoping to expand its trade deal with the European Union. It is also trying to reduce trade barriers with Argentina to import grains. Mexico is also planning to conduct free trade talks with other countries like New Zealand, Australia, Singapore, and Malaysia. These countries are affected by the cancellation of Trans-Pacific partnership with the USA. Mexico has plans to sign trade pacts with Asian nations like Colombia, Peru, and Chile to survive the trade war with its northern neighbor.