Fightback: Mexico's Options in a 'Post-NAFTA' Age

It's time to get it on?

And so what was perhaps inevitable has finally broken out: Mexican President Pena Nieto's fruitless efforts to get on the good side of his American counterpart have come to an impasse. Appointing a Trump-friendly foreign minister and sending him to Washington ahead of time before a meeting between North American leaders didn't work. In recent days, Trump made an executive order concerning the construction of a US-Mexico wall and tweeted that Pena Nieto shouldn't bother coming to the White House if his country didn't intend to pay for the wall. Perhaps preserving a shred of dignity, Pena Nieto then counter-tweeted that he didn't intend to go.

OK, things are pretty bad between the US and Mexico. However, what sorts of cards does Mexico have to play against Trump implementing, say, a 20-40% tariff to help defray the costs of building a border wall? Keep in mind that Mexico sends nearly 80% of its exports to the US, while the US *only* sends less than 15% of its exports to Mexico. If trade were to cease full stop or were to be hampered in a significant way, the loser is obvious. What, then, are the cards Mexico can play?

[1] Cease security cooperation with the United States. In other words, allow sinister types to bring drugs, crime and so on to their heart's content to America. [You know, there are these things called "air transport," "digging below the fence" and "going over the wall".]

“We will bring to the table all themes,” [Pena Nieto] said in a speech. “Trade, yes, but also migration and the themes of security, including border security, terrorist threats and the traffic of illegal drugs, weapons and cash.”

His hope is that by introducing broader uncertainty about the bilateral relationship — Will Mexico still cooperate in the fight against drug trafficking? Will it stop foreign terrorists from using Mexico as a way station into the United States? — Mexico can raise the stakes enough for Mr. Trump to reconsider his “America first” approach to commerce.

[2] On the economic front, there's always [nearly] all-out economic conflict. This may actually be a sensible strategy since it's highly unlikely that the WTO would approve of the US singling out Mexico for tariffs for such blatant, unilateral trade discrimination. 

If Mexico stands its ground and even allows Nafta to dissolve, it would send its own signal to China: Resistance is not futile. And Mr. Trump’s threat to raise tariffs against Mexico to 35 percent could easily be challenged under the rules of the WThe time orld Trade Organization.

This is, of course, a hugely risky strategy for Mexico. When Mr. Trump entered the presidential race in June 2015, a dollar was worth about 15 pesos. Now it’s worth about 22. A frontal confrontation with the United States might send it to 40, Mexican officials fear, fueling capital flight. And yet that may be Mexico’s strongest card.

This being a political economy site, you also have to consider whether Pena Nieto can weather the further discontent that would come his way in the meantime. With a less than 15% approval rating, can he stick around waiting for things to get better eventually?