Greater adherence to institutional norms and lower trade barriers will give Mexico economic benefits with the incoming US government, but there are risks related to the energy sector.
Change brings both good and bad. The bilateral relationship changes that will arise from dealings between Mexico and the new Biden Administration will be no different. Joe Biden triumphed over Republican Donald Trump this past November in the U.S. presidential election. As a result, the relationship will likely leave behind four years of economic volatility and immigration uncertainty. It will enter a phase that is characterized by greater adherence to institutional norms.
However, the arrival of a new president at the world’s greatest economic power also poses significant challenges for the country, especially in energy and trade. Some of the Pros and Cons that will characterize the relationship between Mexico and the new Biden Administration are presented below.
- President Biden’s administration will most likely resume a more proactive participation in multilateral agencies such as the World Trade Organization (WTO).
- It is anticipated that a more delimited approach to protectionism will characterize ongoing trade relations between Mexico and the new Biden Administration, and deepened trade ties will result from the United States – Mexico – Canada Free Trade Agreement (USMCA).
- An agenda that emphasizes creating a green infrastructure will allow the Mexican companies in this sector to enjoy greater opportunities for expansion and growth.
- The new US head of state will demonstrate greater support for globalization and international trade, which is expected to produce benefits for Mexico and the new Biden administration.
- Although it is not expected that the Biden Administration will not escalate the US trade war with China, some restrictions will remain in place. Continued restrictions placed upon the sale of Chinese steel in the United States, for example, will favor Mexican producers of the commodity.
- President Biden may end up negotiating some infrastructure spending with a divided Congress. This could open up opportunities for some Mexican exports.
- In the early days of the Biden administration, the Mexican peso has also benefited from the election of the Democratic candidate. Recently it achieved an appreciation of 29.3 cents against the US dollar to be quoted at 20.31 in the American currency in the wholesale market.
- The enactment of a new fiscal stimulus plan will contribute to the United States’ economic recovery and indirectly that of its major trading partners, including Mexico.
- A return to an Obama Administration-like rise in the rate of corporate income tax and a return to a more regulatory regime may motivate more US companies to consider establishing nearshore manufacturing operations in Mexico.
- Some aspects of the relationship between Mexico and the new Biden Administration will be shaped by the fact that Democrats control both US Congress houses. As such, the Biden Administration will focus on renewable rather than traditional energy sources. This may harm the Mexican energy sector.
- Although the Biden Administration will take a more flexible approach, the immigration issue will continue to be the source of friction on both sides of the United States – Mexico border.
- Gabriela Siller, Director of Financial Economic Analysis at Banco Base, goes beyond the warns of 4 diplomatic and health challenges for Mexico:
- The possibility of stricter health and safety measures imposed upon Mexico’s products by a Democrat-controlled Congress generates higher costs for Mexican exporters.
- The possibility of a revision of the USMCA, particularly related to wages and salaries.
- The potential for diplomatic frictions between President Armando Lopez and US President Joe Biden.
- The possibility that the Biden Administration raises the minimum wage in the US. This could slow the country’s economic recovery, therefore indirectly affecting Mexico’s recovery that is almost entirely based on its northern neighbor’s economic well-being.
- The Democratic victory may hurt the Mexican economy in that the Biden Administration continues to promote Buy American This program promotes the purchase of domestically manufactured products by the US government and promotes investments by companies at home rather than abroad.