CEO’s Executive Summary:

Despite the welcome sight of new U.S. President Joseph R. Biden extolling the virtues of the U.S.-Mexico relationship in his March 1 bilateral meeting with Mexican President Andrés Manuel López Obrador (AMLO), the business climate in Mexico continues to deteriorate, largely due to the AMLO administration’s continued efforts to centralize power, undermine independent regulatory institutions, and promote a nationalist agenda that looks backward, not to the future. And while the recently concluded bilateral meetings were cordial, they were largely perfunctory. The Biden administration appears to be gently easing into its relationship with AMLO, careful not to push too hard or move to fast. This stands in contrast to the warmth and ambition reflected in the U.S.-Canada bilats a week earlier. And much of the problem rests squarely with Mexico itself.

The recent winter storms that brought down Texas’s electrical grid highlight that there has never been a more important or urgent time for cooperation and integration between the U.S. and Mexico, yet forces in Mexico continue to move in the exact opposite direction. A new Electricity Law, for example, aims to shore up the Federal Electricity Commission (CFE) as the dominant player in Mexico’s electric power sector. The new law would damage the interests of private energy producers and weaken the country’s capacity to meet its energy needs with low-cost, clean electricity. It also could be unconstitutional, and it appears to contravene provisions of several Mexican trade agreements, including the United States-Mexico-Canada Agreement (USMCA), opening the door to bilateral conflict.

U.S.-Mexico relations are also poised for conflict in security matters, where the fallout from the November 2020 arrest of Mexican General Salvador Cienfuegos has driven the security relationship to its lowest point since the 1980s. The USMCA’s labor provisions could also be a point of bilateral contention.

Nevertheless, there is still a lot of room for bilateral collaboration and cooperation, as the March 1 summit meeting between AMLO and President Biden demonstrated. AMLO is not gunning for conflict with the United States but instead understands the importance of a good relationship with Mexico’s powerful northern neighbor. This will create opportunities for cooperation on issues ranging from immigration to pandemic response to cross-border trade, but the depth and breadth of that cooperation is likely to be limited.

Meanwhile, pending legislation that would sharply constrain subcontracting in the Mexican labor sector and restrict the autonomy of the Bank of Mexico is adding to concerns about both the business climate and AMLO’s continued efforts to undermine the autonomy of independent institutions. In politics, the June 6, 2021, mid-term elections in Mexico are fast approaching, while the Mexican economy continues to face strong headwinds.

Full Newsletter: Monarch News – March 3, 2021

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