Mexico, Canada need to consider possible US exit from NAFTA: Guajardo

Mexico, Canada need to consider possible US exit from NAFTA: Guajardo

Interviews Canada Mexico US Politics Economy & Policy Structured Finance

Mexico and Canada need to consider the possibility that the United States may leave NAFTA, Mexican Economy Minister Ildefonso Guajardo said.

“If you are going to negotiate, you can’t assume a scenario in which the possibility of the US leaving the agreement is zero. It’s not zero. You have to assume the US may leave the agreement,” Guajardo told LatinFinance at the World Economic Forum on Latin America in São Paulo on March 15.

“Of course, the US is the most relevant economy in the agreement, and it’s in all the countries’ interest that the US remains in NAFTA,” he said.

Mexico, Canada and the United States began renegotiating NAFTA in August last year, after US President Donald Trump campaigned on the threat to pull out of the 24-year-old trade agreement.

The Mexican peso has bounced up and down on Trump’s remarks over the past 14 months but it rose slightly earlier this month, after the US government excluded Mexico and Canada from a proposed tariff on steel and aluminum imports.

Guajardo, meanwhile, said the three sides can reach an agreement before the US trade promotion authority, or TPA, expires on July 1. The TPA gives the US president the authority to negotiate international agreements for approval in Congress.

The Mexican government has said it wants to finish the NAFTA renegotiations before it holds general elections on July 1. Andrés Manuel López Obrador, the leftist frontrunner in the presidential race, has said he will work to make Mexico self-sufficient in food production and other sectors, raising fears that he may propose protectionist trade policies.

But the potential demise of NAFTA would not be the end of the world for Mexico and would have little effect on several sectors in an economy that has become more diversified over the past 10 years, Guajardo said.

“We can be extremely successful with or without NAFTA in the medium and long term. Mexico has a very strong standing in competitiveness on a global level, and we can build the right agenda for competitiveness,” he said.

The challenge, according to Guajardo, would be weathering the short-term reaction in the financial markets. Investors are worried about the loss of an agreement that provides clear rules and “the right signs for investors,” he said. LF