In Mexico, one of the top concerns since the U.S. election is the possibility Trump will renegotiate or pull out of the North American Free Trade Agreement (NAFTA), a move experts warn could be devastating for the country’s poor.
According to a memo drafted by the president-elect’s transition team and obtained by CNN Tuesday, Trump is preparing for a comprehensive reevaluation of the free trade accord between Canada, Mexico and the United States that President Bill Clinton signed into law in 1993. The 200-day plan is built around five main principles, the first being to renegotiate or withdraw from NAFTA, which he has called the “worst trade deal in history.”
Trump plans to begin studying the process and possible consequences of withdrawal on day one, according to the memo, and will consider a formal withdrawal from the agreement by day 200.
Whether the trade agreement has been beneficial remains a ferocious debate, but most experts agree that pulling out of the NAFTA altogether would be a rocky, if not disastrous, process. Under the rules of the agreement, Trump does have the authority to withdraw from NAFTA, as long as he gives six months notice to Canada and Mexico. Canadian Prime Minister Justin Trudeau has said that he’s willing to renegotiate the trade deal, but Mexico’s Enrique Peña Nieto has said his administration is only willing to discuss it.
The 1993 trade agreement essentially eliminated almost all tariffs among the three nations, allowing for the seamless flow of goods and supplies across borders, making it easy for companies to move operations from the U.S. to Mexico. Today, approximately $1.4 billion in goods cross the U.S.-Mexico border every day.
If this is interrupted, Mexico’s poor will bear the worst of the impact, according to Juan Carlos Moreno-Brid, an economics professor at the National Autonomous University of Mexico.
“Just the threat that he has already posed on foreign direct investment is already hindering economic prospects,” Moreno-Brid said in an interview with Humanosphere. “And he hasn’t even done anything yet.”
The Mexican peso hit a record low, plummeting 12 percent against the dollar, after Trump’s unexpected election victory last week. The Mexican central bank has already responded by sharply increasing interest rates.
More than 80 percent of Mexican exports go to the U.S. – representing 26 percent of Mexican GDP – and the economy would take a serious hit if Trump pulled out of the trade deal altogether. Even if he just inflates hefty tariffs on Mexican goods, as he’s proposed to do with Ford cars, some experts fear Mexico would see significant setbacks.
“We don’t know what he’s going to do with remittances,” Moreno-Brid said. Remittances, the funds expatriates send to their countries of origin, are a critical source of income for many Mexicans with family members living and working in the U.S. “If he goes ahead with things like trying to block those remittances or to tax them, that may be very, very adverse for poor people in Mexico.”
Last year, the National Institute of Statistics and Geography (INEGI) found that 46.2 percent of Mexicans live in poverty and 9.5 percent cannot meet basic daily needs. With so many Mexicans already living in vulnerable conditions, Trump’s critics say a disturbance in trade could set these populations back even further.
On the bright side, Moreno-Brid said, the disintegration of the decades-long trade agreement could have a silver lining. Mexico’s economy has been growing at a very slow pace for 30 years and stagnated from an ineffective strategy of export-led growth, so a well-managed change could be beneficial in the long run.
“[Pulling out of NAFTA] would not be good news in the short term,” he said. “But if – and that’s a very big if – the Mexican government … starts looking at ways of reducing inequality and strengthening the domestic market, this could be a good opportunity to put Mexico in a position of passive growth.”