Economics: NAFTA Renegotiation Scenarios
Three weeks have passed since Donald Trump assumed the office of president of the United States, and Mexico’s productive sector remains gripped by uncertainty as to the repercussions of potential changes to United States trade policy.
With a zealous commitment to implementing a poorly conceived idea of protectionism, Trump has stated repeatedly that he will rewrite the terms of or withdraw from the trade accords that the United States has entered into. Trump has been particularly outspoken about his intentions to review and/or withdraw from the North American Free Trade Agreement (Nafta), and especially the country’s trade relations with Mexico. This is a development of great concern and a heightened source of uncertainty for our country given the vast extent of the human and economic resources involved.
It is important to keep in mind that Nafta partners account for only 10% of the United States’ trade deficit while the European Union accounts for another 20%, and China is responsible for half of the US trade gap. In addition, US imports of goods of Chinese origin have mushroomed over the years despite the absence of a free trade agreement between the world’s two largest economies. In fact, Japan and Germany enjoy larger trade surpluses with the United States than does Mexico.
For its part, Mexico ranks only behind Canada as the main purchaser of US products, which totaled 236 billion dollars in 2015; jointly, the two North American countries consume more than a third of the United States’ goods exports (516.4 billion dollars). China, meanwhile, acquired a relatively modest 116 billion dollars worth of US made goods.
In this week’s Economic Outlook, we analyze the possible implications of a renegotiation of Nafta.
In other economic news, last week the national statistics office (lnegi) released its preliminary report on GDP for the fourth quarter and full-year 2016. For the year, growth was estimated at 2.3%, with the service (+3.3%) and primary (+3.4%) sectors experiencing the strongest percentage gains while the secondary or industrial sector was flat.
In Banco de México’s most recent survey, private sector economists on average lowered their economic growth forecast for 2017 to 1.49% from a previous 1.60%. At the same time they raised their year-end inflation forecast to 5.25%, more than a full percentage point higher than their December median estimate of 4.13%. The market also calculates that the peso will end the current year at 21.70 pesos to the dollar, up from its late December consensus of 21.21 USD.
Those adverse adjustments to market estimates were by no means the only bad news in terms of perceptions last week as separate reports on producer and consumer sentiment dove deeply into pessimistic ranges. The Index of Business Confidence (ICE) fell in all three sectors: construction (-7.8 points, year on year), manufacturing (-6.1) and commerce (-5.4). Moreover, consumer confidence plummeted 25.7% in January, a plunge unprecedented in the entire history of Inegi confidence surveys.
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