With the administration’s latest batch of tariffs against China worrying markets, some think the administration will not want to wage trade wars on all fronts and could move to resolve disputes with the European Union on autos or with Canada and Mexico over revamping NAFTA. The visit Friday could be a warm up for renewed efforts on the North American Free Trade Agreement.
“With investors and Congress getting restless, we believe the President knows he needs a win on trade policy, outside of China. Investors are willing to give Trump a leash on China, but the market is uneasy with three balls in the air: 1) NAFTA; 2) EU Autos; and 3) China,” wrote Clifton.
NAFTA talks were put on hold until after the Mexican election July 1, and it was assumed there would be no progress until after the U.S. midterm elections in November. Canadian Prime Minister Justin Trudeau briefly spoke with Trump Wednesday on the sidelines of the NATO meeting. It was their first discussion since the G-7 meeting, when Trump withdrew from the communique because of Trudeau’s comments on trade, according to news wires. They were said to discuss the new dynamic of trade talks with the inclusion of Lopez Obrador.
The peso is up about 9 percent since the middle of June.
“There’s actually people getting optimistic on Mexico,” said Jens Nordvig, CEO of Exante Data.
“I think what’s happening on trade is we have this endless escalation against China, but I don’t think we’ll have an escalation on the other fronts,” Nordvig said. “The push back against that is going to be extreme.”
He added that the administration may be using a new found relationship with Mexico as a lever to pressure Canada. Trump has said he would like bilateral trade talks with Canada and Mexico, so that may be an agenda item for the U.S. in Friday’s meetings.
Marc Chandler, head of foreign exchange strategy at Brown Brothers Harriman, said Mexico is one market favored by emerging market investors looking for a re-entry point after the recent rout.
“In the EM bloodbath, everybody gets hurt, but you have a list of companies that should be able to recover quickly and Mexico is like that,” said Chandler. But Chandler said AMLO, as Lopez Obrador is commonly called, may have some common ground with the Trump administration on NAFTA, like the idea that Mexican workers should be paid more.
But concerns remain about his views towards business, including the development of the key energy business which the Mexican government has opened to foreign investors in an effort to stem its decline.
But Hartasánchez said he is skeptical much headway will be made on NAFTA in the near term. “It seems that everybody has kind of accepted that they are putting this off to November. What they might try to discuss is whether they can advance in the interim so they are in place to announce an agreement in November,” he said.