Latin America Advisor

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What Will the U.S.- Mexico Economic Talks Accomplish?

U.S. and Mexican delegations met earlier this month in Washington to relaunch the countries’ High-Level Economic Dialogue. U.S. and Mexican delegations met earlier this month in Washington to relaunch the countries’ High-Level Economic Dialogue. // Photo: U.S. State Department.

After a four-year hiatus, U.S. and Mexican officials on Sept. 9 relaunched the High-Level Economic Dialogue, or HLED, an initiative started in 2013 to advance strategic economic and commercial priorities for both countries. What does relaunching HLED indicate about the state of economic relations between the Biden and López Obrador administrations? How have the HLED’s agenda and goals evolved in recent years? What are the principal tasks facing a new bilateral working group on supply chains, which the two countries plan to create? What disagreements will the group likely seek to overcome, and how much headway will the two countries make in addressing them through the HLED mechanism?

Michael C. Camuñez, CEO of Monarch Global Strategies, former U.S. assistant secretary of commerce and a principal architect of the HLED: “The High-Level Economic Dialogue was born of the simple recognition that, despite Mexico being a critical economic and trading partner, the United States had no substantive mechanism to engage it meaningfully about issues affecting North American competitiveness. In the aftermath of the Calderón sexenio and the Mérida Initiative, the relationship was dominated principally by security concerns. Regrettably, not much has changed. The need for the platform is as compelling as it ever was. The global economy is more complex now, and the economic competition with China has intensified and degraded in dangerous ways. North America’s share of global trade has decreased dramatically. And the combination of security and migration issues dominate the bilateral agenda, with the economic relationship again lagging. The original architects had a clear vision: not a forum to address simple trade irritants but rather a platform where senior leaders from both governments could together chart a course for the 21st century economy. So while the return of the HLED is welcome news, whether it can live up to its vision, and the lofty rhetoric that accompanies it, is to be determined. It is not clear, honestly, whether Mexico, under AMLO, sees in the United States a true partner with which it wants to cast its lot. It’s equally unclear if the United States sees in Mexico a strategic ally or a demographic threat to be managed. No official, in either nation, has yet to show the kind of inspired public leadership to suggest otherwise. The HLED could and should be a critical weapon in the fight not just to build back better, but to ensure North American leadership for decades to come. Achieving that will require a commitment and political will we have yet to see.

Gerónimo Gutiérrez Fernández, senior advisor at Covington & Burling and former Mexican ambassador to the United States: “I would describe the relaunching of the HLED as the beginning of a conversation on economic issues—beyond USMCA—between the López Obrador and Biden administrations. I am pleased that the governments are relying on institutions to manage their relationship. Over the years, this has proven to be the right approach. Notwithstanding the fact that the meeting is a positive and welcomed step, the usefulness of the HLED will depend on three factors: the extent to which both administrations actually share an economic vision for the future—something that thus far is not clear—effectively articulating work with the private sectors and having diligent follow up after the meetings. The HLED’s central pillars that were announced are appropriate, but the work program needs to be further fleshed out. The HLED has always been about implementing trade and investment facilitation policies that help us take advantage of our commercial agreements (previously NAFTA and now USMCA). Similarly, having sufficient and modern infrastructure, including land border crossings and ports, is key for our overall competitiveness. All of this makes even more sense in the present context of supply chain reconfiguration and resiliency. Promoting development in Southern Mexico and Central America is now part of the HLED’s agenda. This is certainly an important objective, but it will prove challenging unless Mexico can present specific projects that are well thought out. By the same token, energy cooperation is no longer part of the agenda because it is an area of disagreement. I think this is a mistake, because the HLED is precisely intended to facilitate dialogue. Finally, I think that both administrations should consider that time is of the essence. Most of the things we are talking about are not easy to accomplish and will require a lot of work in order to get results, especially in the short and medium terms.

Myriam Rubalcava, economist at Citibanamex: “The relaunch of the HLED is a welcome shift toward re-establishing cooperation and diplomacy as the main guiding principle of the economic relationship between the United States and Mexico. However, the original goals set up in 2013 when the HLED was first created have changed. While efficiency gains and productivity enhancement were at the top of the agenda, the Covid-19 pandemic made evident that there are some major flaws that make the North American manufacturing system very fragile. Building reliable supply chains is now a strategic priority to the United States. It aims to achieve it by expanding domestic production of critical goods, but also by engaging with its main partners to bring consistency within their own supply chains. For Mexico, this is also a desirable goal, as Mexico has struggled in recent years to attract new investment, and a joint agenda to develop priority sectors for the United States and Mexico should help to rebuild investors’ trust. The alignment of interests for Mexico and the United States is evidenced by the fact that the only tangible outcome from the recent HLED meeting in Washington was the Bilateral Supply Chain Working Group. There are clear incentives for the two countries to cooperate and build resilience in face of future challenges from climate events or geopolitics. However, there are also some major misalignments that will need to be addressed. The most obvious one is energy: while the U.S. administration aims to develop a sustainable supply chain, AMLO will continue to push for hydrocarbons. Since the HLED involves other stakeholders such as NGOs, the private sector, academia and workers’ representatives, a consensual view may help to advance on the most polarizing topics.

Tara Hariharan, director of global macro research at NWI Management LP: “The HLED has been revived as a ‘strategic, measurable and goal-oriented platform’ for the United States and Mexico to jointly tackle regional economic and social priorities such as growth, jobs and reduction of inequities. It currently envisions four pillars: ‘building back together’ with economic integration to boost regional competitiveness, sustainable development in Southern Mexico and Central America to stem the causes of migration, compatible regulatory policies for digital communication and building an inclusive, competitive work force. These pillars echo the original HLED’s intentions to promote regional competitiveness, foster growth and productivity and develop human capital. Additionally, the HLED now creates a Bilateral Supply Chain Working Group focused on making regional supply chains less vulnerable to disruptions and more competitive (to nearshore activity away from China amid U.S.-China tensions). This could entail further U.S.-Mexico supply chain integration and complementarity, especially in semiconductors and electric vehicles. Building modern, safe border infrastructure is also key. While the renewed HLED is a welcome rapprochement between Mexico and the United States, its potential is tempered by discordance on some trade and economic issues. Under the USMCA, the United States has increased its scrutiny of Mexican labor rights, and Mexico opposes strict U.S. requirements on regionally made content in tradable products. The United States is concerned that Mexico’s ‘Fourth Transformation’ push for sovereignty includes policies that may shut Mexico’s energy sector to private and foreign companies. Furthermore, U.S.-Mexico supply chain integration will likely be gradual, not a quick fix to address pandemic-era supply bottlenecks or replace well-entrenched, competitive Chinese supply chains.

Earl Anthony Wayne, former U.S. ambassador to Mexico and co-chair of the Mexico Institute Advisory Board at the Wilson Center: “Mexican and U.S. ministers launched the renewed High-Level Economic Dialogue (HLED) with an agenda aimed at boosting supply chains, border management, jobs skills, stakeholder dialogue and helping reduce migration flows. Done well, this process can energize bilateral economic relations with more inclusive processes and concrete improvements. Progress reports from working groups are due in early November. This new HLED recognizes the value of sustained cooperation as demonstrated from 2013-2016 and of learning from the pandemic, which exposed weaknesses in cross-border supply chains. It also reflects agreement to address the root causes of migration. There are four pillars for HLED work. The first pillar, ‘building back together,’ includes steps to support the creation of more resilient supply chains and modernizing the U.S.-Mexico border. Semiconductor supply chains will get a first review, with electric vehicle, medical device and pharmaceutical supply chains as additional candidates. Importantly, work includes renewed attention to improving border crossing processes and infrastructure, as well as better dialogue with private and subfederal government stakeholders. The HLED’s second pillar, ‘promoting sustainable economic and social development in Southern Mexico and Central America,’ will entail the hard work of trying to identify the mix of programs to produce good results. The third pillar, ‘securing tools for future prosperity,’ can foster needed cooperation on cybersecurity and resilient information technology networks. The fourth pillar, ‘investing in our people,’ gives needed attention to workforce development, such as applying best practices for upskilling workers and can usefully target specific groups in need and small and medium enterprises (SMEs).

Nicolás Mariscal, member of the Advisor board and chairman of Grupo Marhnos in Mexico City: “The USMCA brought a plethora of changes and mechanisms that enhanced trade and cooperation among parts to solve sensitive issues such as rules of origin, labor rights and the energy sector. However, the HLED presents a new window for institutional dialogue to address other topics concerning the bilateral economic relationship. The United States has been Mexico’s largest trading partner for decades, especially after NAFTA took effect in 1994. More than 80 percent of Mexican exports head to North America. Even though oil was a significant component in the beginning, the benefits of a free trade agreement have diversified Mexican exports over the past 20 years. As a result, and in the absence of formal mechanisms to discuss important trade matters, the HLED was created in 2013 and lasted through 2016, until the Trump administration took office and dissolved it. A whole term later, this dynamic group resurges to gather representatives from all sectors to address the most important items on the bilateral agenda. Mexico and the United States have decided that managing supply chains and trade across the border is easier when working in tandem. Deeper cooperation and dialogue can also help increase investment in other regions such as Central America, reduce migration flows and combat violence across the region. Economic recovery after the pandemic will also benefit from working together and institutionalizing dialogue. Besides, stronger ties and frequent encounters within the HLED framework can bolster cooperation beyond trade and head into new areas like cybersecurity and information technology. Unlike last time, though, both governments must commit to assure that no political change in either country will affect the duration and reach of this forum.

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