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What could happen to Mexico if Nafta is wiped away?



Since May 2017, when US President Donald Trump announced that he would renegotiate the North American Free Trade Agreement, there were seven rounds of talks. The longer they go on, the more time the Mexicans have to imagine what could happen if Trump Nafta stops altogether.

. 1 How could Nafta end?

If Trump decides to withdraw from Nafta, he would first have to inform the other signatories, Mexico and Canada, six months in advance. But it is unclear whether he could do it alone. Nafta was implemented in 1

993 by Congressional Legislation so US legislators could possibly vote for to lift their repeal. And exporters, importers and trade organizations could file suit. Should Trump prevail, trade between its North American neighbors would likely return to the rules of the World Trade Organization which emerged in 1995 at about the same time as Nafta. Among them, tariffs on US exports to Mexico would average 7 percent; imports from Mexico would average 3.5 percent

2. What would that do for Mexican exports?

It would not be nice. Mexico's total exports amounted to $ 401.2 billion in 2016, with 73.3 percent going to the US and 7 percent to Canada. Only about half of Mexico's exports to the US are now covered by Nafta, partly because of the complicated papers. Mexican manufacturing, real estate and retail companies could be hardest hit, says Fitch Ratings. Avocado exports, on the other hand, could be O.K., as demand in the US has risen sharply and most consumers would likely bear the extra cost.

. 3 What about imports?

Under the rules of international trade, Mexico would have more freedom to impose tariffs on its imports because its "bound tariffs" – the maximum rates that a WTO member can impose – are higher than the "most favored nation" "Prices would be imposed on the US as advanced economies agreed to apply lower rates than developing countries – for example, Mexico could increase its duty on corn, one of the US's largest exports to Mexico, to 37 percent without any rules The relocation would help Mexican corn producers, who have long complained of having to compete with heavily subsidized US grains, and if Mexico increases tariffs, the higher costs would most likely be passed on to Mexican consumers. [19659003] 4 How many jobs would be lost?

That's hard to say. Mil Lions of jobs are directly or indirectly tied to Nafta. But the end of a free trade agreement does not mean the end of the trade. The biggest job loss could come from US companies that shut down their Mexican factories and relocated to another country, such as Ford last year, when plans to build a car factory in San Luis Potosi, a Mexican city, broke off China instead. The $ 1.6 billion investment directly employs nearly 3,000 people and indirectly creates another 10,000 jobs.

. 5 What would be the impact on Mexico's economy?

Oxford Economics estimates that Mexico's gross domestic product will drop by 4 percentage points by 2022 and fall into a technical recession by mid-2019. According to Capital Economics, the Mexican peso could fall to around $ 23 to $ 25 per dollar . The company also estimates that the inflation forecast will be revised from 4 percent to 6 percent, and central bank Banxico will raise interest rates by about 200 basis points.

. 6 Could Mexico export elsewhere?

Yes. Mexico is not sitting around waiting for Nafta to be renegotiated. The country has free trade agreements with dozens of countries and seeks to modernize or expand agreements with other partners. Recently, Mexico joined ten other countries, including Australia, Japan and Canada, in signing a successor to the Trans-Pacific Partnership. It also expects that it will soon update its current free trade agreement with the European Union. China is also on Mexico's sights. Government officials recently traveled to Shanghai to meet with infrastructure, energy, automotive and mining executives.

. 7 Would the end of Nafta trigger a new economic development?

Not until Mexico makes so many deals with the US. It would take many years, even decades, for Mexico to revise its trade patterns.

. 8 Would there be any winners?

Maybe Mexican farmers. These cheap US exports displaced Mexican producers and eliminated about 5 million jobs. Although Mexican production has grown strongly under Nafta, it has created more seasonal jobs than permanent jobs, which has hampered job creation in this sector as a whole. Without Nafta, local producers would probably stop competing with US products and boosting their own production.

The reference shelf

  • Text of the North American Free Trade Agreement.
  • A US Congressional Research Service reports on what happens when the US withdraws from free trade agreements.
  • Bloomberg Businessweek Article: "The godfather of Mexican manufacturing could not care less about Donald Trump."
  • Bloomberg Quick: Why It Could Not be Easy for Trump to Kill Nafta [19659036] Mexico's Choice.

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