Officials from the United States, Mexico, and Canada said this week that the negotiations for the North American Free Trade Agreement (NAFTA) would extend into 2018. The extension is not an auspicious sign for a deal, and the Trump administration has already said that he will “probably” end up terminating the agreement.
In U.S. circles, thoughts on NAFTA’s long-term prospects have become more grave of late, but the tone is very different south of the border. As some U.S. business leaders lobby for NAFTA, their Mexican counterparts have already completely moved on — months ago.
“Psychologically, Mexico has already accepted that NAFTA is coming to an end,” said Jorge Guajardo, former Mexican ambassador to China from 2007 to 2013 who now consults for both Mexican and American companies. “You have President Trump posturing and negotiating as if Mexico’s life depends on NAFTA. Mexico is like, ‘we’ve already walked away.’”
This week, Guajardo met with three prominent CEOs of Mexican multinational conglomerates who were in Washington, D.C., to speak on a pro-NAFTA panel.
“They couldn’t be more blasé about the whole NAFTA pullout,” he told Yahoo Finance. Despite the CEOs’ reason for coming, they were circumspect. The attitude was that “Mexico will take a little beating, but we’re used to it — dealing with economic crisis,” Guajardo said.
The Mexican population writ-large may not view NAFTA particularly favorably — many see it as a bad deal in a history of bad deals with its bullying northern neighbor. But business leaders in Mexico generally have a favorable outlook on the agreement, said Guajardo, making their attitude even more striking.
Mexican companies will be fine
For an example of how companies in Mexico will fare, Guajardo pointed to Grupo Alfa (ALFAA.MX), a massive conglomerate whose portfolio is incredibly diverse. Thanks to NAFTA, the company imports 20% of the U.S. total production of turkey legs and boneless chicken to be processed. If and when the agreement founders, it will simply source that from somewhere else and open those markets. It’s much easier now to do that, Guajardo said, because many countries like Brazil and Argentina are now far more open to free-trade.
Guajardo also pointed to the automotive business. “Half the cars in the North American region has a component made by [Grupo Alfa’s] auto parts business,” he said. “They have six foundries in the U.S. and eight in Mexico. Nobody else has that product.”
Even without NAFTA, American car manufacturers will still have to buy the parts and produce in Mexico. Only now, Guajardo said, with a tariff that will be passed on to the U.S. consumer. “The economy will suffer,” said Guajardo. “No one denies that. But on a company basis, they all seem to be saying: ‘we’ll be okay.”
This is not a new attitude
This attitude may be surprising to those north of the border, but Guajardo said that this sentiment has been present for months.
“In the U.S. you still find opinion pieces making the case for NAFTA,” he said. “You don’t find this in Mexico. Everyone’s like, ‘let’s move on.’”
In January, Guajardo, who regularly makes trips back and forth from D.C. to Monterrey, saw “doom and gloom, a feeling of helplessness.”
Monterrey, one of Mexico’s largest cities, has benefited from NAFTA, and Guajardo expected pessimism. “That’s not what I saw. Everyone started to think about worst-case scenarios and realized it’s not so bad and started moving on.”
American companies, some of which Guajardo also advises, have not reached this point, he realized.
“They’re still trying to find a way and work something out. But in Mexico, it’s like, ‘meh, it’s over,’” he said. “It’s an underreported story in the U.S. how much Mexico has moved on. Nobody’s talking about [saving NAFTA] down there.”