U.S. trade associations, bureaus and councils with interests ranging from the agriculture sector to the energy industry recently objected to Mexico’s efforts to contravene the spirit of, and even the laws governing, the United States-Mexico-Canada trade agreement (USMCA). Their complaints, sent in a letter to Secretary of Agriculture Tom Vilsack and Trade Representative Katherine Tai, included Mexico’s obstacles and bans on certain trading goods, organic certifications, biotechnology approval requirements and labeling demands. None of Mexico’s actions constitute a tariff on trade — which would be an outright violation of the agreement — but they are obstacles that a government can impose to slow or halt trade to protect domestic producers. These measures are also in line with President Andrés Manuel López Obrador’s 1970s-style nationalism. He has already tried to renationalize the country’s electricity sector — though has so far been stopped by the judiciary — and is now preparing counter-reforms for the oil and gas sector.
It would seem that López Obrador did not fully understand the implications of the USMCA when he enthusiastically signed it in 2019. And after upsetting two important U.S. industries at the same time — agriculture and energy — his actions have been noted and relayed to the Biden administration and Congress. Action from Washington is only a matter of time. Biden has been busy getting the stimulus package through Congress, dealing with the pandemic and handling a surge of migrants at the U.S.-Mexico border. But eventually the complaints will come to his attention and the tussling will begin. López Obrador should understand that he cannot win. Asymmetry continues to characterize the binational relationship and when it comes to economics, Mexico depends on an open border with the United States much more than the United States depends on Mexico.
At the end of the day, López Obrador is an opponent of free trade. He tolerates it because he understands that Mexico’s economy would collapse without it. But López Obrador’s allegations that free trade “damages” Mexico’s economy are never balanced against its enormous benefits for the country. He also does not acknowledge that some of Mexico’s poverty and inequality is linked to the Mexican government’s failure to compensate the “casualties” of free trade. In a way, he is correct that the Mexican government failed to implement durable and aggressive policies that ensured alternatives for those displaced by free trade. But that was bad policy, and not necessarily a fundamental problem with trade.
Mexico is creating waves in Washington, and on this issue, López Obrador faces a political coalition seldom seen in Washington: both Democrats and Republicans will likely defend the interests of their constituents. The measures they lobby for and those Biden eventually implements are not yet known. But they are coming.
Moreover, López Obrador’s own policies are to blame for a deteriorating economic situation in Mexico. Between 2019 and 2020, the country’s economy shrank by 9%, a contraction not seen since 1932. Poverty and economic inequality have also risen. This is forcing many Mexicans to consider heading north. The number of detentions of Mexican citizens at the border, which had reached a record low just a few years ago, is now ticking up. This is also likely to create an additional point of friction between the Biden and López Obrador’s administrations, and add to the complications of resolving the emerging trade issues.
The Biden administration must be firm with Mexico, but leave room for López Obrador to save face — for the Mexican president’s willingness and ability to fall back on familiar rhetoric about the United States as the eternal enemy of Mexico should not be underestimated. Biden’s response should be measured — a matter-of-fact focus on negotiations, possible legal action and the like. And the work of public diplomacy on the ground should begin soon. The Mexican public must be prepared to discount whatever actions López Obrador may take or whatever rhetoric he may use. Most Mexicans in any event understand the United States and appreciate the deep relationship between the two countries. That is an asset for any American strategy involving a Mexican administration that still has three-and-a-half years left in its term.
We should brace for rough waters ahead. The Biden-López Obrador relationship has not been easy, and it is about to get worse.