CEO Executive Summary
Negotiations to update NAFTA gained a new momentum in July following the election of Andrés Manuel López Obrador (AMLO) to be the next president of Mexico. President Trump’s initial warm reaction to AMLO’s victory certainly helped, but Mexico’s willingness to negotiate bilaterally with the U.S., with Canadian support, has been the main driver behind recent progress. It appears that the two sides are very close to resolving one of the main sticking points between them – issues related to auto rules of origin. While several more months of negotiations remains the most probable scenario, both the Americans and the Mexicans are talking about a resolution by the end of August. Nevertheless, we have our doubts that this apparent honeymoon in U.S.-Mexico relations will last. For starters, it is unclear if the U.S. is willing to make real concessions in the NAFTA talks that would get both Mexico and Canada on board, and then there is the open question of whether President Trump is truly prepared to make a deal with Mexico, giving up his favorite political “piñata” in advance of a bruising midterm election, for which he will want every available red meat issue to turn out his base. In addition, even as Mexico and the U.S. get closer on the economic issues raised in NAFTA, the two countries continue to hold conflicting policy preferences and national interests related to migration and security.
The post-election context in Mexico has been dominated by AMLO. Indeed, there is a sense that the country has two presidents – a nearly invisible incumbent and a hyperactive president-elect. AMLO uses his nearly daily press conferences to announce cabinet and sub-cabinet appointments when these have historically been made in November. He announced his legislative agenda for the fall despite not taking office until December 1. And he has already announced his austerity and anti-corruption platforms and presented some of his governing programs. These announcements have been met by near silence from a political opposition that was crushed in the July election, leaving it to civil society, the private sector, and the media to raise questions about the wisdom of some of AMLO’s personnel choices and policy promises.
In the economy, the election results overshadowed slow growth to push consumer confidence to its highest level in a decade. Markets also continued to express confidence in AMLO’s moderate post-election persona, driving the peso to highs not seen since before the election of Donald Trump. Still, investment banks and ratings agencies are flying a yellow flag, concerned about the future of economic reform and macroeconomic stability under an AMLO government. And concern persists about the security situation in a country that saw record high homicides during the first half of 2018.
Full Newsletter: Monarch News – August 2018
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