Thursday, January 26, 2017

What Does Mexico Do Next?

OK, so Mexican President Enrique Peña Nieto cancelled a meeting with President Trump over the vexing question of who pays for the wall. I get it; he has to stand tall against the Trumpster. National honor and all that.

The problem is, of course, that Mexico needs the US more than the US needs Mexico. NAFTA has been great for Mexico, bringing jobs and manufacturing to backward, rural Mexico.

And, of course, the open-ish border of the last 50 years has been an invaluable safety-valve for Mexico, probably saving it from complete meltdown. The Mexican ruling class basically encouraged poor Mexicans to migrate to the US and its jobs. That way they didn't need to reform their crony economy, and could still live off the revenue from state oil company Pemex.

But right now Mexico is in a bit of a tight spot, as revenues from Pemex are down, and the left is demonstrating against retail gasoline price increases as Mexico tries to shake up its oil industry and partake of the new exploration technology. Then there is the Mexican Peso, down from $0.08 in mid 2014 to $0.047 in recent days.

The thing is that the US has the whip hand with every other country. We are the richest country of any size and everyone wants to trade and to sell to us. Much more than we want to trade and to sell to them.

So what does Mexico do? Do they stick to their principles while their economy goes down the drain, bringing in a leftist dictatorship that takes Mexico the full Venezuela route? Does it allow all its south-of-the-border manufacturing to die on the vine while Trump does trade deals with other countries with less pride?

The truth is that, for 50 years after World War II, the US acted as a benevolent uncle, shepherding its client states along, and giving them invaluable access to the US domestic market, while the US acted as global policeman and hegemon.

I'll bet that in the end Trump puts together a deal that keeps Mexico going economically while "making Mexico pay" for the wall.

But I don't have a clue how he will do it.

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