Recent Developments and Mexico’s Negotiating Position
On the previous day, President Sheinbaum declared that following her phone conversation with President Donald Trump on April 16, there has been no significant progress in the matters of tariffs on steel and aluminum, nor on tariffs affecting the automotive industry.
Mexico’s Weak Negotiating Position
As time passes, it becomes increasingly clear that Mexico finds itself in a notably weak negotiating position amidst asymmetric talks with the new U.S. administration. The public and private stances of Mexico in this process appear unconvincing to the U.S. counterpart, President Trump’s government.
Reasons for Lack of Credibility
- Economic Impact: The repercussions of a disruption in growing external trade flows are significantly more severe for Mexico than for the U.S. In Mexico, exports account for over 43% of its GDP, whereas U.S. exports represent only about 11% of its GDP. Essentially, a trade disruption would affect Mexico four times more than the U.S., relative to their respective economies.
- Public Finances: Mexico’s public finances are not in a position to implement stimulus plans for the economy. The previous year of President López Obrador’s administration was marked by an excess of social support programs with evident electoral intentions, combined with uncontrolled spending on large-scale projects. This led to a substantial widening of the fiscal deficit, forcing the government into borrowing over two and a half trillion pesos just for 2024. Currently, Mexico lacks the financial flexibility to adopt a fiscal policy aimed at supporting the economy against external shocks.
U.S. Advantage and Mexico’s Limited Options
The U.S. government is aware that the longer Mexico delays reaching an agreement on tariffs, the more desperate it will become. Consequently, Mexico might eventually accept highly unfavorable trade conditions. Similarly, the delay in announcing specific retaliatory measures will diminish their effectiveness when Mexico eventually decides to implement them.
Bank of America’s Economic Forecast for Mexico
Bank of America recently released its projections for Mexico’s GDP performance in 2025 and 2026 amid global instability. The forecast indicates a 0.2% decline in 2025 compared to the already weak performance of 2024. For 2026, the estimate is a mere 1.0% annual growth rate. Should this scenario materialize, Mexico’s economy would grow at an average annual rate of just 0.40% during the first two years under President Sheinbaum’s administration—a poor performance indeed.
China’s Negotiating Leverage
Unlike Mexico, China has options to balance its negotiating power with the U.S., potentially making a patient stance towards President Trump’s tariff maneuvers more credible. China can implement a stimulus package to bolster its domestic market and counter external shocks resulting from the tariff dispute with the U.S.
Future of Mexico-U.S. Negotiations
Given the limited negotiating options available to Mexico, telephone conversations between President Sheinbaum and President Trump are likely to transition from being unproductive to becoming a new source of tension. The author, an economist, suggests that Mexico’s ability to maintain the facade of effectively confronting Trump may soon wane.
Key Questions and Answers
- Q: Why is Mexico’s negotiating position weak? A: Mexico’s economy is more vulnerable to trade disruptions, and its public finances are stretched thin, limiting its capacity to implement stimulus measures.
- Q: How does the U.S.’s advantage play out in negotiations? A: The U.S. benefits from Mexico’s desperation as negotiations drag on, potentially leading to unfavorable trade conditions for Mexico.
- Q: What are Bank of America’s projections for Mexico’s GDP? A: The bank forecasts a 0.2% decline in Mexico’s GDP for 2025 and a meager 1.0% growth rate in 2026.
- Q: How can China leverage its position against the U.S.? A: China can implement domestic market-boosting stimulus measures, enhancing its negotiating power against U.S. tariffs.
