By ANTONIO GARZA, former U.S. ambassador to Mexico
Last week, the U.S. Federal Reserve hiked interest rates by 0.75 percent for the second consecutive time, and the U.S. Congress initiated debate on the Inflation Reduction Act. This legislation, if passed, would impact a wide range of issues, including the Affordable Care Act, climate change mitigation, and corporate taxes.
In our own hemisphere, July saw a flurry of public exchanges in the U.S.-Mexico relationship, including a bilateral meeting between the U.S. and Mexican presidents. While I remain optimistic about the long-term prospects for North America and the opportunities that could be leveraged from ally-shoring, the bilateral relationship is without a doubt going through a challenging period.
On July 20, the United States and Canada both requested dispute settlement consultations, arguing that Mexico’s energy policies violate the United States-Mexico-Canada Agreement (USMCA) by favoring Mexican state-owned electricity and oil enterprises over U.S. and Canadian companies. The Joe Biden administration’s dispute request is not only backed by the U.S. business community, it also enjoys bipartisan congressional support.
The stakes for Mexico’s economic future are high, especially given the recent International Monetary Fund (IMF) forecast that the world economy is on the cusp of a global recession. Mexican President Andrés Manuel López Obrador (AMLO) will need to make concessions on energy in the coming months or Mexico could face between $10 and $30 billion in tariffs.
Such a disruption in North American trade would be catastrophic for Mexico’s economy, as Mexico sends 80 percent of its exports to the United States, which funds millions of jobs for Mexican workers.
So far, López Obrador seems unlikely to alter the direction of his energy policies. The Mexican president has responded to the consultations with criticism of his opponents and appeals to nationalism. López Obrador plans to state Mexico’s position amid a military parade on September 16th, the country’s independence day.
Trilateral settlement talks will likely extend well into 2023, which could make the dispute a focal point of the upcoming presidential campaigns. As occurs every 12 years, presidential elections in Mexico and the United States will overlap in 2024. These elections will also set the tone for the six-year review of USMCA in 2026, which was stipulated in the agreement’s sunset clause.
Last month, the United States filed its fifth labor complaint under USMCA about alleged violations of the right to collective bargaining and freedom of association in Mexico’s auto industry, requesting a probe into union organizing rights in a U.S.-owned plant in northern Mexico. Sanctions against factories in violation would likely rescind their tariff-free status, leading to economic losses.
Mexico’s economic recovery also continues to face other hurdles. While the Mexican economy beat forecasts and expanded 1 percent in the last quarter, experts predict that growth will dampen in coming months. The country’s annual inflation rate hit a 21-year high of 7.99 percent in June, and the Central Bank of Mexico is expected to continue to raise interest rates.
In June, Mexico’s trade deficit reached $4 billion — three times higher than projected — as the country’s fuel imports outpaced crude oil exports. This is unwelcomed news for López Obrador, who has been counting on crude oil revenues to help cover the cost of Mexico’s subsidies on gasoline prices, which will carry an estimated price tag of $24 billion this year.
On security, in July Rafael Caro Quintero was captured in Sinaloa, Mexico. A crucial figure in criminal organizations for over four decades, Quintero became the Drug Enforcement Administration’s most wanted man after being accused of killing a DEA agent in 1985 and getting released from a Mexican prison in 2013 on a technicality. The United States is now requesting his immediate extradition, which is unlikely to happen quickly, if at all.
On immigration, the U.S. Supreme Court ruled that the Biden administration had the authority to terminate Migrant Protection Protocols or “Remain in Mexico” last year. The policy — started by the Donald Trump administration — sends back migrants to Mexico to wait for their U.S. immigration proceedings. The White House is reportedly divided over whether and how rapidly to end the policy.
Amid continued high levels of border crossings, the recent tragic death of 53 migrants from Mexico and Central America in a trailer in San Antonio shows the urgent need for meaningful immigration reform. Over the past few years, heightening enforcement measures along the southern border are incentivizing more migrants to travel by trailer, increasing business for smugglers.
While there are no quick fixes to the large number of undocumented crossings at the border, as I’ve written previously, one step that could alleviate pressures in the region is expanding the U.S. temporary guest worker visa. H2 visas have been shown to reduce the number of border apprehensions. Additionally, providing a greater number of visas to wouldbe migrants would dry up revenue for smugglers and support critical U.S. industries in need of workers.
In fiscal year 2021, a record 300,000 H2A seasonal farm worker visas were issued to Mexicans. In May, the Biden administration also made 11,500 additional H2B visas available in key industries for Haitians and Central Americans, who are arriving at the border in greater numbers.
Lastly, after facing roadblocks to pass comprehensive immigration reform in Congress and the courts, the Biden administration is instead taking a more piecemeal approach. In response to litigation filed by nine states on the legality of DACA (the Deferred Action for Childhood Arrivals program), the administration is soon expected to adopt a rule to protect the program’s recipients from deportation.
ANTONIO GARZA is a U.S. lawyer who served as his country’s ambassador to Mexico between 2002 and 2009. In recognition of his work, in 2009, the Mexican government bestowed on him the Águila Azteca, the highest award granted to foreigners. Prior to his appointment as ambassador, Garza served as Texas’ secretary of State from January 1995 to November 1997 and was also chairman of the Texas Railroad Commission. He is currently a lawyer at White & Case, specializing in cross-border issues. He is also currently a director at both Kansas City Southern and MoneyGram.