Editor's Note: This assessment is part of a series of analyses supporting Stratfor's upcoming 2019 Third-Quarter Forecast. These assessments are designed to provide more context and in-depth analysis on key developments over the next quarter.
An agreement by Mexico to step up its efforts to stem migration flows from Central America and into the United States has deflected the White House threat to impose tariffs of up to 25 percent on its exports. But uncertainty surrounding the plan to penalize Mexico for failing to hold up its end of the deal to U.S. President Donald Trump's satisfaction persists. And that uncertainty will have real effects on Mexico's bottom line, as well as on the Mexican administration's efforts to consolidate power. Details of the June 7 agreement with Mexico's government to curb illegal migration northward across the Mexico-Guatemala border include a commitment by the Mexican government to assign 6,000 National Guard troops to border enforcement duties. Those personnel will complement thousands of federal police, soldiers and state police already performing duties there. Mexico also agreed that migrants requesting asylum in the United States could be returned to Mexico to await the adjudication of their asylum claims.
With the announcement of a deal to curb illegal migration into the United States, the White House has backed away from a threat to add tariffs on imports from Mexico — at least for now. Under the current deal, Mexico has agreed to step up its efforts to prevent migrants, mostly Central Americans, from crossing through its territory and on to the border with the United States. But the ambiguities of satisfying the deal mean that the threat of future tariffs will continue to linger, creating significant uncertainty for businesses and politicians on both sides of the border.
A separate, unconfirmed report stated that the United States would lead an attempt to reform asylum legislation in both Mexico and among Central American countries so that migrants are returned to the first foreign country they enter on their trek northward. In practice, the policy would oblige Mexico and Guatemala to accept responsibility for tens of thousands of foreigners. But neither country is equipped to handle such an inflow, and housing migrants in humanitarian conditions would require more funding than their governments currently devote to immigration control.
Several facets of the deal, such as the National Guard deployment and Mexico's acceptance of more asylum seekers, appear to have been previously discussed. On June 10, Trump claimed that the deal's further aspects would be unveiled soon and that the agreement could include attempts to seek approval from Mexico's Congress to commit the country to "large-scale actions" against migration. The number of migrants — particularly Central Americans — crossing through Mexico to the United States has increased significantly over the past 18 months. In May, more than 100,000 people were apprehended by U.S. authorities at the border with Mexico, the highest monthly total in nearly a decade. The negotiations that led to the deal's announcement apparently made it clear that the White House would judge Mexico's compliance as satisfactory only if apprehensions of migrants crossing the U.S.-Mexico border fell to 20,000 per month, a number last seen around Trump's 2017 inauguration. In the decades before the dip that followed Trump taking office, those numbers were consistently much higher.
The Focus Turns South
The Trump administration and Mexico have both focused on reinforcing Mexico's southern border with Guatemala, a chokepoint for immigrants moving north from Central America, as opposed to taking action along the much longer U.S.-Mexico border. Smugglers ferry migrants along country roads from Guatemala, while immigrants often travel in groups colloquially termed caravans that are often too large for authorities to effectively control. Although Mexico could dispatch more troops to reinforce that border, it will instead send the National Guard — a security force consisting of military personnel who fall under the command of the civilian secretary of the interior. That's likely because the use of military forces to apprehend and remove Central Americans would draw domestic criticism and legal challenges.
Mexico's National Guard currently has about 6,000 deployed members, but there are already plans to transfer enough personnel from the country's army and navy to form an 80,000-strong force by 2020. This Guatemalan deployment would likely involve a significant chunk of the personnel that Mexico had intended to deploy during the remainder of the year, and could compete for attention with other domestic security priorities. The sheer number of factors influencing migration from Mexico into the United States makes meeting White House demands a perilous mission for Mexico City.
As Mexico increases enforcement action on its southern border, smugglers will likely respond by raising the prices they charge to get migrants past security checkpoints. Organized criminal groups that move migrants through roadblocks will adapt their smuggling tactics by looking for alternate routes or bribing security forces to allow them through. The moves by Mexico to beef up border security will likely reduce migrant flows, at least temporarily, but as smugglers make adjustments, those additions will still likely be insufficient to meet the White House's aim of significantly reducing illegal immigration in the long run. Politically motivated unrest in Honduras over the next few months could also depress its economy and drive more people into Mexico over the remainder of the year. Endemic crime, drought and poverty in the rest of Central America will keep providing incentives for its residents to emigrate.
Throughout the process, the United States will retain the option of slapping Mexico with tariffs at virtually any time.
Any perception on the White House's part of Mexico's failure to meet its demands will keep the threat of tariffs alive in the near future. Aside from the significant uncertainty that recurrent negotiations over possible tariffs will create for businesses and their supply chains on both sides of the border, the possibility of tariffs will also complicate the Mexican leadership's political future. The United States made it clear to the Mexican government that it expects to see results on the migration issue within 90 days. Mexican Foreign Minister Marcelo Ebrard, meanwhile, claimed that the United States had given Mexico just 45 days in which to show results. Either way, the relatively compressed timeline means the tariff issue could soon rear its head again.
Throughout the process, the United States will retain the option of slapping Mexico with tariffs at virtually any time. And even if a deal is eventually reached to remove the threat of tariffs entirely, the uncertainty created by the situation will have a chilling effect on some investments in Mexico. Companies that have supply chains extending deep into Mexico creating products for the U.S. market will be wary of sinking more money into a country whose goods could soon be subject to significantly higher tariffs.
The Threat to AMLO
U.S. tariffs would almost certainly set back the efforts of Mexican President Andres Manuel Lopez Obrador — commonly known as AMLO — to cement his ruling National Regeneration Movement as the most powerful political force in Mexico. In states such as Chiapas, Guerrero, Michoacan and Oaxaca, where informal employment exceeds 50 percent of the total workforce, significant tariffs leading to job losses would spark social unrest, mainly in the form of protests by displaced workers demanding relief from economic difficulty. Mexico's government could respond with several billion dollars worth of short-term economic relief, but that would mean defunding other priorities in the 2020 budget. The federal bureaucracy, already hard-hit by AMLO's austerity measures, would suffer additional cutbacks and become even less efficient.
Given the political and economic pain that U.S. tariffs would inflict on Mexico, the Mexican administration would have virtually no option but to retaliate if the White House followed through on its threats. U.S. fuel exports, the source of most of the gasoline sold on the Mexican market, would be an obvious target for economic retaliation. Mexico could also slap retaliatory tariffs on U.S. agricultural products, such as beef, chicken, wheat and corn. Agriculture writ large could become a larger sticking point in the future as well if the White House continues to press Mexico to buy more U.S. agricultural goods. Although Trump mentioned that increased Mexican imports would be part of an eventual deal, its negotiators flatly denied that agriculture was discussed in the three days of talks over the now-aborted tariffs. Furthermore, Mexico has little room to increase agricultural imports, especially for staple grains like corn and soybeans, as it has already made record levels of purchases in the first part of the year.
Stubbornly high levels of illegal immigration would stoke Trump's dissatisfaction with Mexico and keep the threat of tariffs potent ahead of the 2020 presidential election. The strongest factor working against a presidential decision to enact tariffs on Mexico will be the political benefits of uninterrupted economic growth. Actually following through on the threat of imposing tariffs on Mexico could dampen U.S. economic prospects enough that — depending on the timing of tariffs — they would hamper Trump's reelection bid. But despite the likelihood of collateral damage to the U.S. economy, such tariffs would impose an even higher economic cost on Mexico. As a result, AMLO's government will move to stem the flow of Central American migrants, hoping to keep the threat at bay.