President Trump will soon announce his intentions regarding the North American Free Trade Agreement. The possible outcomes, including U.S. withdrawal, would jeopardize the United States’ energy trade with Mexico, which totaled nearly $40 billion last year, or more than $100 million every day.
There is a tendency for U.S. politicians to look down their noses at Mexico. Drug-related violence, high-profile corruption, dangerous and uncontrolled migration, and persistent poverty attract derision, and the country is often held up as the Latin America country most resistant to change. During his campaign and in the first few months of his administration, Trump and his circle of advisers have echoed many of these perceptions, incorporating them into their political mindset.
Mexico certainly has problems, and that’s part of the reason for the precarious situation that NAFTA is in, despite the tangible and significant economic benefits it provides to consumers and companies in both countries.
Mexico has a lot going for it economically, but without NAFTA’s tie to the United States, it could fall under the influence of Russia and China. Mexico has abundant energy resources, a rich cultural tradition, and it is highly productive. Thanks to reforms in its energy sector adopted by the Mexican government in 2014, which allowed foreign companies to invest in oil-and-gas production, Mexico is now one of the world’s best areas for new energy development, with hundreds of billions of dollars’ worth of investment opportunities in petroleum and electricity production.
For investors, Mexico has more than 60 billion barrels of recoverable oil in the Gulf of Mexico and 550 trillion cubic feet of shale natural gas. Mexico’s deregulated electricity market is a major opportunity for U.S. power companies. In recent years, Mexico has replaced coal and diesel fuel with clean-burning American natural gas to produce about 30 percent of the nation’s electricity. Our southern neighbor emerged as our largest natural gas export market, and last year more than half of U.S. gas exports went to Mexico.
The question now is whether Mexico will retreat from its energy reforms when a new Mexican president is elected in July. Lopez Obrador, a former leftist mayor of Mexico City with a nationalistic viewpoint, is the current frontrunner. He has proposed a sweeping reorientation of the nation’s energy policy with an emphasis on independence from the United States. There’s concern in the U.S. business community that Mexico could descend into another Venezuela, which not long ago nationalized many U.S. energy assets and has awarded oil and natural gas deals to Russian and Chinese companies.
The U.S. Chamber of Commerce and the U.S. oil and gas industry have warned that they won’t support NAFTA reform if a provision is removed or weakened that safeguards American companies from asset seizure. Ironically, it’s not the Mexican government that wants to drop the provision — known as the Investor-State Dispute Settlement provision — but rather some of Trump’s economic advisers because they are “America first” advocates who are skeptical of trade agreements in general.
Never mind that scuttling NAFTA, which facilitates $560 billion of annual trade with Mexico in addition to nearly $600 billion of valuable trade with Canada, would have a chilling effect on U.S. investment abroad and our national security. Leave aside the fact that U.S. companies have benefitted from increased competitiveness and profitable investment opportunities in Mexico and Canada. Not to mention that Russia and China are ready to fill any void left by the absence of the United States.
For Americans, NAFTA has meant market access to affordable consumer products, reliable energy supplies, millions of jobs, new energy export markets and greater energy security. President Trump should embrace NAFTA as a cornerstone of his economic and energy strategy. He should not open up the important Investor-State Dispute Settlement provision to negotiation, rather he should strongly insist on keeping it.
