Between a Wall and a Hard Place: Trump's Dubious Stand Against Mexico by Aldo Gonzalez
Note: This brief is intended as an introduction to current events or specific policies. Any opinions expressed herein reflect only those of the author.
The Trump administration’s contentious actions could catalyze economic recession in Mexico and economic pain in various American states.
In September of 2014, 43 Mexican students were on their way to a protest, focused on a discriminatory hiring process for teachers which favor urban over rural, when they went missing. After national condemnation and civilian unrest, the 43 students were found dead in a ditch in Iguala, Guerrero after an attack ordered by Iguala Mayor, José Luis Abarca. The tragedy damaged President Enrique Peña Nieto’s reputation - by failing to launch an investigation, he demonstrated extreme apathy.
In November of the same year, Mexico’s First Lady, Angélica Rivera, came under intense scrutiny when Mexican media outlets reported that her $7 million home was registered under the name of a company receiving federal contracts.
Near the end of the 2016 U.S. presidential election, President Peña Nieto’s decision to welcome President Trump to Mexico for a conversation, despite his tremendous unpopularity and desire to make Mexicans pay for a border wall, was seen by the Mexican people as appeasement. Additionally, a 20% hike in gas prices as 2017 commenced prompted a gas shortage, civil unrest, and calls for Nieto to step down.
As a result of these follies and other missteps in his four years in office, President Peña Nieto stood with a depressing 12 percent approval rating two weeks into the new year. But as the Trump administration rolled into the White House, Trump flaunted Executive Order 13767. The EO called for the immediate planning and construction of a wall along the Mexico-United States border funded by Mexico. Immediately, President Peña Nieto saw higher approval ratings and a political tool to save his floundering legacy.
After responding through diplomatic channels, reminding President Trump that Mexico would not fund the wall, President Trump tweeted:
Not only was Trump’s challenge unorthodox in that he neglected traditional diplomatic channels to express resentment regarding a pending visit from the leader of an ally, but it also solicited an unorthodox response when framed within the decades of ameliorated Mexican-American relations:
You don’t need to understand Spanish to know that President Peña Nieto cancelled his visit to the Trump White House as a result of Trump’s tweet. This action, challenging the general decorum for both countries, boosted Peña Nieto’s popularity. The Mexican people rallied behind their leader against the American who accused their country of exporting rapists and criminals.
If the Trump cohort expects Mexico to fall in line with negotiations after a brief stand, they could not be more delusional. After four years of economic pain, corruption, and bloodletting, Peña Nieto’s Mexico yearns for a uniting cause. History between the two countries has not always been rosy. In fact, the negative outweighs the positive. If Trump wishes to play the role of the cavalier American looking to challenge Mexicans, the Mexican people will have no problem beating on Trump piñatas.
With a little under two years left in his term, President Peña Nieto will not hesitate to distract his people from the economic tribulations by focusing on a foreign antagonist. This being said, Mexico has powerful political potential to impede Trump’s progress on issues ranging from the wall construction, NAFTA re-negotiations, and drug enforcement at the border.
Former Mexican presidents, Felipe Calderon and Vicente Fox, have ardently opposed even the semblance of a brick appearing along the border. Prominent Mexican commentators such as Jorge Castañeda, former Secretary of Foreign Affairs and current NYU professor, encourage the Mexican government to drown the notion of the wall in legal battles ranging from environmental to regional challenges.
It takes three parties to re-negotiate the core of NAFTA. Mexico could simply refuse to play a role. While obstructing Trump’s efforts, Mexico could supplement the potential collapse of the deal with trade agreements throughout Latin America.
With cartel violence picking up and heroin related deaths reaching epidemic proportions through the United States - for example, increasing by 225 percent in Dayton, Ohio between 2011 and 2015 - cooperation between the two countries to mitigate addiction is crucial. According to Castañeda, one lever of influence Mexico could pull is to diminish their role in drug enforcement on their side of the border, allowing drugs to flow into the United States. Such an action would be morally and diplomatically reprehensible, but it is easy to imagine such an outcome should this contentious relationship continue.
Nevertheless, such great political power comes with potentially devastating economic consequences. Taking a look at the primer on Mexico’s economic surfaces reveals a precarious situation as the peso has plunged, losing nearly 50 percent of its value since the president took office. With the eve of the new year, the peso hit record lows against the dollar as traders considered Trump’s contentious trade policies when looking at long-term prospects. After Trump’s first press conference featured a potential border tax on companies like Ford migrating south, the peso’s value suffered yet again. These unprecedented lows lie in the context of Trump’s November victory blowing a 12 percent hole into the peso’s value.
Yet, following in the trend of Nieto’s approval ratings as of late, the peso bounced back by more than one percent after Nieto and Trump spoke over the phone in conciliatory tones on January 27th. Immediately after, the peso stood at 20.84 against the greenback signaling its strongest standing since early in January.
The sudden rise may appear to be a positive aspect for the country, investors, and the Mexican president. Nevertheless, the notion that the currency can fluctuate so massively with a few tweets or a phone call is not a sunny landscape. Such volatility deters investors, something Mexico yearns for as an emerging market and a country suffering from lackluster economic growth. When factoring in the sensitivity of currency investors and Trump’s affinity for the uncertain, it is fair to predict that the peso will only sink further, spelling high levels of inflation to the already damaging inflation measure.
Here is where the consequences begin to surmise. As inflation rises, the Mexican people will suffer tremendously, particularly as they pay for the gas hikes, which already prompted civil chaos once. But, unfortunately, inflation is only one piece of the troubling mosaic Trump could construct.
Trump’s retaliation for Mexico’s refusal to “pay” for a wall appears to be a 20 percent import tax on Mexican goods. Not only is this move detrimental for American consumers, but it would be the first shot in a trade war that could send Mexico into a recession. For American consumers, beer, cars, and your Super Bowl snacks would see price hikes.
A weak currency, rising inflation, economic stagnancy, and a tax in Mexican imports will catalyze devastating damage to Mexican wages. When faced with economic pain, affected Mexicans migrate north to the United States, facilitating the cycle of undocumented immigration that places stress on the American immigration system. Keep in mind, any appearance of appeasement on behalf of President Peña Nieto would spell political crisis for him and his party, all the more likely to distract from the economic pain at home with “brave” stands against Trump’s America.
Taking a step back from the immediate consequences, this debacle points to the potential deterioration of a mutually-beneficial relationship. What is more maddening is the Trump administration’s gross disregard for the crucial economic ties that exist with Mexico. Currently, Mexico is our third largest goods-trading partner with $531 billion worth of total goods traded in 2015. In addition, Mexico was the second largest goods export market for the United States in 2015 with $236 billion worth of goods. Alternatively, Mexico exported $295 billion worth of goods to the United States, creating jobs in transportation, travel, and technical industries while crafting a Mexican middle-class.
Too much uncertainty impedes corroborating an accurate depiction. Nevertheless, the propagation of hostility and reverence for strong-man politics will inevitably damage both countries, with Mexico bearing the brunt of the avalanche.