NAFTA Negotiation Forecast
The new Trump administration has met with auto executives recently. He has threatened a 35% tax on imports from Mexico.
Yesterday, without notifying the Mexican delegation, Trump and his press secretary made the decision to build the wall. And by the way, Mexico will pay for it. This insulted the Mexicans and today the meeting was cancelled.
The problem with the wall is not keeping out Mexicans but keeping out gangs from Central America. This is also a problem for Mexico, but the way it was presented did not send a diplomatic message to the Mexicans. In short, the reasons behind tightening border security has merits, but the approach is wrong. This has increased tensions. In fact, the Republican congressman Richardson from Texas was critical of the approach.
The negative rhetoric carried over today in the Trump speech in Philadelphia. He stated that the US looses about $60 from Mexico ever year. Yesterday, there was an analyst on CNBC stating that upstaging the automobile supply network with Canada was of minimal benefit to the US.
This gain for the US in renegotiating NAFTA seems to be very small. Even if it amounts to $60 or $100 Billion US dollars, it is small versus the US economy. Thus this is just a continuation of the populism carrying over from the US presidential election.
Once the rhetoric dies down, I expect the new NAFTA agreement to be a win-win for all three countries involved – US, Canada and Mexico. Thus, I would buy Mexican assets as they are pushed down temporarily.