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Mexico verges from panic to optimism contemplating life after NAFTA

Whether Mexico leaves the North American Free Trade Agreement (NAFTA) and opens its doors and economy to Russia and China in the face of US protectionism is a matter upon which we must wait upon events.

Of course, realities must be faced. Mexico sends 80 per cent of its exports to the US and China exports 14 times more goods to Mexico than Mexico sends back. As for Russia, there is a lot of potential for growth, as they say when there is little else to be said.

Mexico sent its first blueberries to China last summer, as trade between the two countries continues to grow. But experts doubt the Chinese market can solve Mexico's trade issues should NAFTA fail to deliver.

"It's become very sexy to talk about replacing trade with the US with trade with China," said Enrique Dussel Peters, an economist at the Universidad Nacional Autonoma de Mexico and co-ordinator of its Centre for Mexico-China Studies. "It's as if one could simply start sending to China, automatically and massively, the same cars we now send to North America.

"Anyone who's ever been involved in a company or a production chain knows it just isn't so," said Prof Peters.

There appears to be three options open to Mexico if NAFTA becomes a dead letter, say rival advocates of each way out: 1) salvage what one can from a bilateral deal with the US; 2) Simply trade with everyone, US included under standard World Trade Organisation rules, and 3) become a truly free trade country like Singapore.

Mexico has had some success at finding new markets. The proportion of its exports that go to the US fell because its exports to Japan, up 11.3 per cent; Brazil, up 13.5 per cent and to the EU, up 13.7 per cent. Exports to Canada also grew 6.2 per cent.

Mexico City trade lawyer Alejandro Luna, from the law firm Santamarina and Steta, says he and others have called for greater trade diversification sparked by the NAFTA uncertainty and dissatisfaction in the United States. 

"The renegotiation finally opened our eyes," said Mr Luna.

Mexican trade officials have been in talks with the EU to update a 20-year-old free trade agreement. They're also having discussions with Brazil and Argentina, and with the European Free Trade Association of Norway, Switzerland, Iceland and Liechtenstein.

Mexico wants to buy more corn from Argentina and Brazil just to show the US the pain its farmers would suffer if NAFTA fails.

"Diversification is coming about," Mr Luna said. "But it will take some years, and even then, the US and to a lesser extent Canada, will be our predominant trading partners."

He said Mexico's best options outside of NAFTA lie in modernising and making more use of its free trade agreements with more than 40 countries and trading blocs worldwide.

One of the more radical trade proposals is making the country totally tariff free. Senator Francisco Burquez Valenzuela of the National Action Party (PAN) says that if the US closes itself off, Mexico should respond by making itself tariff free.

Senator Valenzuela seeks a five-year transition to complete free trade, to lower prices for Mexican consumers and cut costs for Mexican manufacturers.

"Completely unrealistic," said Prof Peters, adding that it would destroy entire whole sectors of Mexican manufacturing.

But the rising sentiment shows the kind of thinking that's occurring in a country where there's less optimism about NAFTA's survival than there is in Canada.

Mr Luna says Mexico has been encouraged by Canadian support, particularly during Canadian Prime Minister Justin Trudeau's trip to Mexico City, which calmed fears that Mexico would be thrown under the bus by its NAFTA partners.

"We do feel that we have an ally in this negotiation. We recognise that each side will have its own interests and needs, but we feel that we can count on Canada to back up the NAFTA agreement as a whole."

Prof Peters says Mexican industry is realising that the end of NAFTA wouldn't mean the end of trade with the US supply chains. These are too integrated and investments too large to be dismantled if tariffs uptick.

"The real Plan B after NAFTA," he said, "is to keep on trading with the US and Canada, but to do it without NAFTA."

After an informal dinner with US Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo said Mexico was open to helping the US achieve its goal of re-balancing trade, as long as it was through an expansion of US exports and not cutting Mexican exports.

It's been more than a year since the avowedly protectionist Trump administration took office, but other than refusing to be the big spender in a campaign against global warming, a cause in which he obviously does not believe, and sabre rattling in Korea, the US president has done little internationally other than facilitate the defeat of ISIS by allowing the military to do what it thinks best without being micro-managed afar - even if that includes co-ordinating with Assad-friendly Russian forces in Syria.

But very little has been done on trade good or bad. And for many in Mexico, it is dearly hoped that what looks like a vigorous policy of empty bluster continues to be pursued with determination at least as long as it takes for a new crisis comes to take everyone's mind off trade deficits and normal trade relations can resume.

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U.S. Trade Specialists