Free Trade

Calm After the Storm

  • Why it matters

    Why it matters

    Mr. Trump’s threats to NAFTA have been seen as a policy of “Mexico Last.” But there is hope Realpolitik is returning to relations between the two countries.

  • Facts

    Facts

    • Close to 2000 German firms are invested in Mexico.
    • Audi has opened a factory in Mexico for its Q5 SUV. Nissan and Daimler are building a manufacturing plant, and BMW plans to start Mexican production in 2019.
    • Siemens plans to develop projects with the Mexican government to improve infrastructure and key industries, with a volume of up to $36 billion over the next 10 years.
  • Audio

    Audio

  • Pdf
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BMW plans to start production in Mexico in 2019. Source: BMW

Mexico’s Economics Minister Ildefonso Guajardo made a recent trip to Hanover Trade Fair in Germany. With his country partnering on next year’s fair, it was chance to get a taste of things to come. He also met with representatives of German companies with operations in Mexico. And there was one question on their lips: What will happen to NAFTA, the free trade agreement with the United States?

Ever since Donald Trump took power Washington, confusion has reigned. At times, Mr. Trump has tweeted against “the worst deal of all time” on a daily basis, promising to do away with it. More recently, he said he only intends to reform it.

German firms were nervous. Mr. Guajardo, a 60-year-old with a keen mind, soothed them. Realpolitik was gradually making a comeback, he said. Their relief was palpable.

Nearly 2,000 German companies – from the mid-sized to huge – have invested in Mexico. A third of them also produce there. Until a few months ago, their investments seemed risk-free. Manufacturing costs in business-friendly Mexico were low, and the free trade zone in Central and North America meant products were easily exported to the lucrative US market.

Then Mr. Trump arrived. Suddenly this comfortable arrangement was on shaky ground. Would the Mexican industrial miracle be brought to its knees by customs duties? German investors in the country have been on edge ever since.

Earlier this spring, several hundred people gathered in a semicircle in a Mexican conference room. At their center, two men expressed their faith in a prosperous future. Siemens chief executive Joe Kaeser and Economics Minister Guajardo were there to sign a declaration of intent concerning Siemens’ involvement in the country.

Mr. Kaeser had come in person, even though he knew this would be read as a political signal, as Washington lobbed criticism at its southern neighbor. “In challenging times, it’s always good to have friends standing beside you when it really matters,” Mr. Kaeser said.

The plan is to jointly develop projects to improve Mexico’s infrastructure and key industries, with a volume of up to $36 billion, or €32.9 billion, over the next 10 years. Mr. Kaeser announced “as a start,” investments of $200 million and the creation of 1,000 jobs over the coming decade.

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