Apr 6, 2017 | 18:40 GMT

2 mins read

Mexico: Seeking a South American Alternative to North American Trade

Mexico is continuing to make preparations in case the North American Free Trade Agreement falls. In comments made during a World Trade Organization review of Mexico's trade policy on April 5, Mexican Deputy Trade Minister Juan Carlos Baker suggested that his country might erase some trade tariffs for Brazilian and Argentine agricultural exporters. The concession, however, would come only if Brazil and Argentina granted Mexican automotive exporters expanded access to their domestic markets.

Reducing existing tariffs on South American agricultural exports is part of a trade tactic Mexico has implemented since U.S. President Donald Trump was elected. In the event that NAFTA collapses (and is replaced with a bilateral trade deal) Mexico would place retaliatory tariffs on U.S. exports of agricultural products, such as corn, soy and meat. If Mexico reduces or eliminates tariffs for Brazilian and Argentine corn, for example, U.S. corn producers would suddenly be at a disadvantage and likely lose some of their dominant market share in Mexico (virtually all Mexican corn imports come from the United States). But such trade barriers would also drive up inflation in Mexico, which greatly depends on U.S. imports in general.

Corn and chicken would be among the most likely products that Mexico, Brazil and Argentina prioritize in eventual conversations. Corn faces low Mexican tariffs (of around 5 percent), though Mexico has a 75 percent tariff on chicken imports. Moreover, Mexico opened its market for Brazilian rice this week.

But even if Mexico continues to pursue trade liberalization with South America at the expense of the United States, accessing the Brazilian and Argentine automotive markets is easier said than done. Brazil and Argentina have long used high tariffs and import quotas to protect their automotive manufacturing. Brazil and Mexico currently have a quota of $1.56 billion on yearly bilateral automotive imports — a cap the South Americans are unlikely to easily budge on. Mexico is eager to eventually expand its exports to Brazil, which have lagged in recent years thanks to Brazil's recession. But Brazil and Argentina's combative labor unions may oppose and thus delay any efforts to liberalize trade along these lines. Nevertheless, Mexico is intent on exploring expanded trade ties with Argentina and Brazil. It will hold meetings in April and June with representatives from both countries in the hopes of diversifying trade connections and, more important, pressuring Washington to let NAFTA stand.

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