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Nov 10, 2016 | 20:58 GMT

3 mins read

Mexico: Administration Prioritizes Diplomacy With New U.S. President

(Stratfor)

Donald Trump's victory in the U.S. presidential election shocked much of the world, provoking a variety of responses from leaders around the globe. Mexico is particularly concerned about the policies that the president-elect will instate after promising massive deportations, new trade tariffs and the renegotiation of NAFTA throughout his campaign. It is hardly surprising that the country's president, Enrique Pena Nieto, was among the first world leaders to congratulate Trump on his electoral success. He also encouraged the U.S. president-elect to open a new chapter in relations between their countries and agreed to meet with Trump, who visited Mexico in late August at Pena Nieto's invitation, before he takes office in January. Despite the high stakes, the Pena Nieto administration seems to be prioritizing diplomacy, biding its time to see whether Trump adjusts his policies and demeanor once ensconced in the Oval Office.

The results of the U.S. election have already taken a toll on Mexico, plunging the peso more than 13 percent since Nov. 8 (the biggest fall since the 1994 economic crisis). Mexico's finance minister recently announced that the 2017 budget is settled at around 4.8 trillion pesos (about $234 billion), nearly 2 percent smaller than this year's budget. This suggests that Mexico will not, in fact, pay for the wall that Trump vowed to construct during his campaign. Still, the country, which sends 80 percent of its exports to the United States, is bracing for the impact that a potential renegotiation of NAFTA would have.

But NAFTA is not a one-way street for the United States and Mexico. About 90 percent of U.S.-based fortune 500 companies have substantial investments in Mexico, according to the former chief of Mexico's central bank, Guillermo Ortiz, and Mexican exports include some 35 percent U.S. inputs. This, coupled with the fact that Canada, too, would have to be involved in any change to the trilateral trade agreement, means overhauling NAFTA may be tricky for the next U.S. president. Even if Trump tries to re-negotiate NAFTA, Mexico's economy is relatively healthy — thanks in large part to its preferential treatment in the U.S. market. The country holds a little more than $175 billion in foreign reserves, including a $90 billion flexible credit line with the International Monetary Fund, and it boasts a diverse economy with bustling tourism and manufacturing sectors.

Nevertheless, Trump's election will continue to affect Mexico, potentially changing political dynamics in the country and leading to greater uncertainty in its 2018 presidential election. Increased security problems and perceived gubernatorial corruption have damaged the ruling Institutional Revolutionary Party's image and popularity. Meanwhile, the National Action Party and the Party of the Democratic Revolution may decide to coalesce to thwart the Morena party's left-wing candidate Andres Manuel Lopez Obrador. Lopez Obrador could try to rally Mexico's lower and middle class against Trump — especially if he enacts policies once in office that antagonize Mexican leaders.

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