Politics trumps trade in US and Mexico ahead of 2024 elections

The US and Mexican governments have in effect parked two trade disputes, frustrating business leaders who want to see an important regional trade pact respected. Officials and experts following the talks blame next year’s presidential elections in both nations.

Talks between the US, Canada and Mexico that ended in Cancún on Friday produced little progress on disputes that have dragged on since 2021 over Mexico’s nationalist energy policies and protectionist motor industry rules in the United States.

The US has failed to comply with a January panel decision under the US-Mexico-Canada trade agreement, known as the USMCA, that ruled in favour of Mexican and Canadian carmakers.

Mexico has not complained about the US’s failure to abide by the ruling, while Washington has not advanced a dispute over Mexico’s nationalist energy policies, which favour state-backed champions at the expense of North American rivals.

“There has been a decision in both the US and Mexican governments to try to manage all the tensions until after the two elections,” said Claudia Ruiz Massieu, a Mexican opposition lawmaker who heads the Senate committee for USMCA implementation. She said USMCA had “lost strength” as a result.

Luis de la Calle, a former North American Free Trade Agreement (Nafta) negotiator and trade expert, said the US was not abiding by the panel decision on car parts — which determined Washington was applying rules on the proportion of parts that needed to be made regionally, too strictly — to appease unions. 

“There is a lot of pressure from the United Auto Workers [union] and the steel producers, who are an important base for the Democrats,” he said, adding: “Mexico has not insisted on adherence as it has an incentive for the panels not to be respected because of its own energy dispute.”

The uncertainty over the disputes has unsettled investors in a region with more than $1trn of annual commerce transacted under the three-year-old USMCA, the successor to Nafta. It could damage a once-in-a-generation opportunity to attract more manufacturing investment as part of the global trend to move production closer to home.

“The lack of adherence to the procedures [for resolving trade disputes] sends the wrong message,” said a business leader in Mexico City involved with USMCA issues. “How can you have confidence in the agreement?”

Keen to fend off Republican criticism that he is soft on illegal migration, US president Joe Biden has made it a priority to win co-operation from his populist Mexican counterpart Andrés Manuel López Obrador in reducing unprecedented numbers of mainly Latin American migrants from reaching the southern US border.

As a result, experts say, Biden’s government has been reluctant to criticise Mexico’s nationalist energy policies. Were it not for the migration issue, one senior diplomat from the region said the US would be “much more aggressive” on the trade disputes.

“As long as López Obrador’s administration is mostly co-operating on immigration, my sense is the [Biden] administration is very reluctant to push hard on the other issues,” said David Gantz, a fellow at Rice University’s Baker Institute in Texas. “The [US] election is getting closer and closer and the impact of . . . presidential decisions in a number of areas are being severely influenced by that.”

The Office of the United States Trade Representative (USTR) and Mexico’s Economy Ministry did not respond to requests for comment in time for publication. USTR officials said before the talks that they were engaging with Mexico and Canada on finding a positive solution on cars that would benefit all the stakeholders.

US officials also say they have had to work hard to rebuild dialogue since the presidency of Donald Trump, who described Mexicans as killers, rapists and drug dealers and threatened to close the border. They point to the deal’s success in protecting workers’ rights in Mexico under far-reaching labour provisions.

The three leaders met in January and in recent months both US and Canadian companies have won individual permits and contracts in energy for some companies.

Domestic political considerations could yet mean that the US escalates its fight against Mexico’s opposition to genetically modified corn before the election, since it matters to key states in the corn belt such as Iowa.

But the deadlock over energy supply and the motor sector are likely to continue until new governments are in place in 18 months’ time. Mexico’s presidential and congressional elections are in June 2024, while the US follows in November.

US business groups have expressed frustration, as has Mexico’s car and truck sector, the world’s seventh largest. Many believe US non-compliance sets a bad precedent and would make it easier for Mexico to ignore future rulings. “It weakens the pact as an instrument for legal certainty,” one industry representative said, adding that non-compliance also threatens to undermine a review of the USMCA scheduled for 2026.

Few think the pact is at risk of unravelling, but how and whether it is modified depends on who is in office in the US and in Mexico.

“Full implementation and enforcement of the USMCA agreement are the only way to sustain broad political support for it,” said Arturo Sarukhán, a former Mexican ambassador to the US who is now a consultant in Washington. “Kicking the can down the road until after the presidential elections in Mexico and the US in 2024, or failure to enforce or abide by the agreement’s commitments, will harm political support for USMCA in the longer term.”