Facing protectionism, Mexico should deepen its commitment to diversify trade relations

Being an open, export-oriented economy heavily dependent on the U.S. market, Mexico urgently needs to find new trade partners after the presidential elections on July 1

Facing protectionism, Mexico should deepen its commitment to diversify trade relations
A picture illustration shows Mexican pesos and U.S. dollars banknotes - Photo: REUTERS
English 15/06/2018 15:16 Gabriel Moyssen Mexico City Actualizada 15:31
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Once regarded as a symbol of the postwar order and the leading role of western countries on international economic and political affairs, the Group of Seven (G7) lost influence since the fall of the Berlin Wall in 1989.

In this new period of global transformation, the strategy of Mexico, one of the 20 major economies and a developing nation, should be focused on the commitment to deepen its presence in the multilateral organizations and diversify its trade relations.

Established during the 1970s in response to the collapse of the exchange rate due to the unilateral United States’ cancellation of the direct international convertibility of the dollar to gold, the energy crisis and the ensuing recession, the G7 (Canada, Italy, France, Japan, West Germany, the United Kingdom, and the U.S.) evolved to the Group of Eight (G8) with the formal participation of Russia in 1998, following the end of the Cold War.

Just one year later, in 1999 the Group of Twenty (G20, composed by Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, the U.S., and the European Union) was founded in Berlin as an informal forum to deal with the massive problems brought by the rapid pace of globalization and the interdependent economies: the Mexican peso crisis, the Asian financial crisis, the Russian financial crisis, and the failure of the American hedge fund Long-Term Capital Management (LTCM).

In general terms, Mexico’s membership in the G20 is considered strategic, acknowledging its weight in the world economy.

Through its participation, Mexico is part of the most important decision-making process regarding the coordination of macroeconomic and monetary policies, aimed to reduce risks and avoid a new crisis.

At the same time, the G20 is the venue of dialogue for the promotion of priority issues for Mexico, such as economic growth, energy efficiency, food security, the fight against corruption and mitigation of climate change effects, according to the Mexico's Ministry of Foreign Affairs  (SRE).

In 2012, Mexico was the host country of the G20 summit in Los Cabos, Baja California, where the group’s leaders adopted the recapitalization of the International Monetary Fund (IMF) with more than USD $450 billion in order to support the countries facing financial emergencies. In addition, the Los Cabos Plan of Action was approved with several agreements for the coordination of fiscal and monetary policies.

“We are not afraid”

This year, the G20 Meeting of Foreign Affairs Ministers was held in Buenos Aires, Argentina -for the first time in a South American nation- on May 20 and 21.

The government of President Mauricio Macri set three priorities: the future of work, infrastructure for development and a sustainable food future, while the talks also led to the condemnation of the presidential election in Venezuela.

Nevertheless, during the previous G20 Meeting of Finance Ministers and Central Bankers in the Argentinian capital on March, U.S. Treasury Secretary Steven Mnuchin stressed that the Trump administration is not afraid of trade war, days after the White House announced the imposition of sweeping tariffs on steel and aluminum imports from Mexico, Canada, China and the EU.

“We need to be prepared to act in the U.S.’s interest to defend free and fair reciprocal trade, and in doing that there’s always a risk that if we put tariffs on other people”, they will retaliate, Mnuchin declared.

“We are not looking to be protectionist”, he said, reiterating that while “we are not afraid” of a trade war, given the U.S. economic power and its commercial deficit, it is not what Washington wants.

Leaders from the G20 countries and invited nations will meet in Buenos Aires in late November. Still months away from the summit, there should be some room for compromise, yet officials and economists are pessimistic.

“From all the talks, one can draw the conclusion that most people have great concerns if an escalation would occur and trade wars would determine the future”, German Finance Minister Olaf Scholz said in Argentina.

For its part, Mexican Foreign Secretary Luis Videgaray also attended in Buenos Aires the 12th Meeting of MIKTA Foreign Ministers, a group that includes Mexico, Indonesia, South Korea, Turkey, and Australia.

The SRE described MIKTA as a flexible forum for dialogue that was created in 2013 for strengthening bilateral relations, promote cooperation and contribute to global governance.

That is precisely the path Mexico should follow; while several analysts have been predicting that by 2050 the new structure of G7 may be headed by China, the U.S., India, Brazil, Japan, Russia, and Mexico, due to the growing weight of emerging economies and the formation of regional blocs, such as the Pacific Alliance (Mexico, Chile, Colombia, and Peru), the current protectionist trends in Washington poses a serious threat to the North American Free Trade Agreement (NAFTA), whose future is more uncertain than ever.

Being an open, export-oriented economy heavily dependent on the U.S. market, Mexico urgently needs to find new trade partners after the presidential elections on July 1.

Edited by Sofía Danis
More by Gabriel Moyssen

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