Uncertainty Hits American Farmers and Mexican Consumers

Uncertainty Hits American Farmers and Mexican Consumers from Wolf Street

NAFTA 2.0 gets complicated.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

With the fifth round of NAFTA negotiations scheduled to begin next week, Mexico finds itself facing a very uncertain future. The free trade agreement upon which its entire national economic model was built is now looking precariously fragile. Ildefonso Guajardo, Mexico’s economy minister, told the Mexican Congress last week that the way things stand, an end to NAFTA “cannot sanely be ruled out.”

In such an event, the resulting economic pain for Mexico could be considerable, according to calculations from Banco Santander. It forecasts a 15% drop in exports and a 16% fall in imports if the US declared a full trade war rather than reverting to World Trade Organization tariff rules. Moody’s Investors Service estimates Mexico’s economy could shrink as much as 4%.

The biggest problem for Mexico’s economy is the sheer scale of its dependence on trade with the US: 81% of its exports go to the U.S., and about half of its imports come from there. Mexico is so deeply integrated into US supply chains, particularly manufacturing production that the IMF describesMexican and American industrial production as “co-integrated.” Increases in American economic output are transmitted one-for-one to Mexican output.

Now, with the future of NAFTA increasingly in doubt, Mexico has begun diversifying its import and export markets away from the U.S., as we warnedwould happen in January.

Mexico bought 100,800 tonnes of yellow corn from Brazil in September and 41,000 tonnes from Argentina — a drop in the ocean compared to the 10.5 million tonnes bought from the US. But as the FT reports, by October this year, it had bought 11% more of the commodity from the two South American countries than in all of 2016.

“It’s important because it shows Mexico has other countries where it can substitute grain imports,” said Juan Carlos Anaya, director-general of CGMA, a consultancy.

Continue Reading / Wolf Street>>>

Sharing is caring!

Author Image

Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.