Mexico’s Export-Led Economy at Risk With Annual USMCA Reviews

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Fixed investment in Mexico, a measure of spending on productive capacity, fell more than 3% in March from a year earlier, extending its contraction to 19 consecutive months, according to Mexico’s national statistics institute. Private investment dropped by nearly 5% in the same period, underscoring how companies are delaying or shelving projects.

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Mexico’s investment slide has hit the very machinery, construction and equipment spending needed to turn once-ubiquitous nearshoring hype into actual job-creating factories and high-value exports. While some analysts still think Mexico stands to benefit from its geographic proximity and preferential access to the American market, expectations have cooled considerably. 

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‘That’s Enormous’

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In comments earlier this week, Economy Minister Marcelo Ebrard, Sheinbaum’s top USMCA negotiator, conceded that the annual reviews amount to an added layer of uncertainty. But he stressed that they don’t threaten the sturdy foundations of North American trade ties. 

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The local economic impact, he said, will hinge on how the process is managed, with Mexico seeking to ensure that each round brings fewer sources of friction. He added that US-Mexico trade talks set for later this month will be key to providing clearer rules for how the annual reviews will work.

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Such rules will prove crucial to mitigating uncertainty and advance key Mexican interests, like lowering tariffs on US-bound exports from key domestic industries like the auto sector, said Juan Carlos Baker, a former senior trade negotiator for Mexico.

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“No one likes uncertainty, it’s not ideal,” he said. “But we have to now understand how the trade relationship is going to work.” 

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Doubts over the future of Mexico’s trade ties to its northern neighbors have already dealt a heavy blow to its economy, according to a report from Banamex released on Wednesday. The report estimated that USMCA uncertainty shaved 0.3 percentage point off GDP last year, or more than $5 billion.

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“The logic behind this estimate is that a significant part of the decline in private investment can be attributed to external factors, among these the trade agreement would be the primary driver,” the Banamex analysts wrote.

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More upbeat executives like Sebastián González Tron, chief investment officer at Mexico City-based real estate developer Thor Urbana, point out that Mexico nevertheless finds itself in a better position on US tariffs than many other nations that export heavily to the US market. That’s because the existing USMCA still shields its shipments from the higher levies Trump has sought to impose on many others.

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Telecommunications mogul Carlos Slim, Mexico’s richest man, also struck an optimistic note, looking past the current USMCA stalemate.

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“I think Mexico’s trade with the United States is always going to continue” even if the name of the deal changes, he said after news of rolling USMCA reviews broke. 

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Slim played down the risks to Mexico’s export model, casting one of Trump’s well-known pet peeves as proof of the country’s advantage over the US.

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“We have a trade surplus of $250 billion,” he said. “That’s enormous.”

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Still, many others think a future marked by USMCA annual reviews could keep relations with Washington permanently on edge, and give the US more leverage than it already has to extract concessions.

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That’s the view of Marroquín, the US-Mexico trade researcher. 

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“The longer this process goes, the more uncertainty it generates,” he said.

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