Introduction
In last week’s article (“Playing with Fire”), I highlighted that for President Sheinbaum’s government, three key issues stand out in their relationship with Trump: the fentanyl drug trafficking, the upcoming review-renegotiation of the T-MEC, and oil and gasoline exports that support Cuba’s dictatorship, causing frustration in the US government and Congress.
In just a week, matters have become more complicated.
Trump’s Trade Misconceptions
Trump studied at the University of Pennsylvania, earning a degree in Economics. However, it seems he missed the fundamentals: scarcity, opportunity cost, and comparative advantages. His understanding of international trade is fundamentally flawed, viewing it as a zero-sum game and believing that if the US has a trade deficit, it’s because Americans are subsidizing trading partners with that imbalance.
Worse, Trump is convinced tariffs can achieve other goals, such as combating fentanyl trafficking from Canada and Mexico, weakening Iran’s Islamic dictatorship by imposing a 25% tariff on imports from countries trading with Iran, and recently punishing eight European countries opposing his claim to Greenland with a 10% tariff on their exports to the US.
The Rise of Protectionism
In this scenario of trade rule disruption caused by an increasingly protectionist, nativist, and xenophobic Trump, who disregards legal frameworks, several countries, including Mexico, have adopted protectionist measures. This has contributed to a net destruction of international trade volume and value.
China and Canada responded to Trump’s protectionism by agreeing to mutually reduce tariffs on Canadian agricultural products and Chinese electric vehicles. It’s unlikely Trump will welcome this agreement, potentially announcing new tariffs on Canadian exports. This occurs amidst Trump’s incorrect assertion that the US doesn’t need the T-MEC and his previous suggestion of preferring bilateral agreements with Canada and Mexico instead.
Mexico’s Challenging Scenario
The TPP and, to a lesser extent, the T-MEC implied that both Canada and Mexico had reduced asymmetric negotiating power in favor of the US due to rules agreed upon in various trade, investment, and dispute resolution areas. All three countries were treated equally. This asymmetry will regain relevance for Canada and even more so for Mexico in bilateral negotiations with the US.
Unlike Canada, which adopted a proactive negotiation and lobbying stance from the outset of the first trade dispute with the US, Sheinbaum’s government opted for a reactive approach, conceding to each new tariff threat from Trump. The achievement—not insignificant—has been to postpone the implementation of these broad tariffs on Mexican exports. A proactive strategy, including lobbying and collaboration with US businesses also harmed by a trade breakdown, is needed for Mexico. After all, the US is Mexico’s primary export destination and a crucial supplier in many sectors.
In bilateral negotiations, it’s essential to acknowledge the US’s dominant position, as over 80% of Mexican exports go to the US. Losing preferential access to this market would severely impact Mexico, stifling economic growth through reduced exports and investment decline.
Trump understands this leverage. In negotiations, he’d demand “the pearls of the virgin,” meaning opening and non-discriminatory treatment in the energy sector, reconstruction of autonomous regulatory bodies, ending fuel shipments to Cuba, increased security and anti-drug trafficking cooperation, handover of politicians linked to cartels, and more.
Mexico’s Negotiation Strategy
The Mexican government must clearly understand the cost of failing to reach an agreement and its negotiation strategy, including limits. Relying on the “Masiosare” (a Mexican slang term for relying on luck or hoping for the best) won’t suffice.
