US-MEXICO PACT CHANGES DYNAMICS ON TRADE, POLITICS, OUTLOOK

By Denny Gulino

WASHINGTON (MaceNews) – It remains to be seen if the U.S.-Mexico agreement eventually cuts Central American migration to the north back anywhere near the low numbers the Trump Administration inherited yet the aftershocks are likely to be consequential nevertheless.

–President Donald Trump is likely to have gained increased confidence in his ability to chart his own course despite the opposition of many of his top advisers, and his confidence in those advisers who backed him is also likely to grow along with their influence on future policy.

–Markets are likely to increase the odds of success, both in restarting negotiations with China and finishing them on satisfactory terms, now that President Trump’s approach can be cast less as chaotic and subject to personal whim and more as a product of intended strategy and tactics.

–Mexico’s “good neighbor” approach in the face of President Trump’s threats, the immediate and intense negotiations and their successful preliminary resolution will likely greatly enhance U.S.-Mexico diplomatic and ultimately, commercial relations despite lingering trade imbalances.

–China, which stood to gain from any trade setback to Mexico, will likely review its options now that U.S leverage and credibility have been enhanced with a major negotiating success

–Republicans in the Senate, whose previously unflinching support of the president was beginning to waver in the run-up to the Monday Mexico deadline, have been firmly cemented back in the pack with the president’s preliminary success on the world stage, likely to be a foundational plank in his reelection campaign.

–On the negative side, countries like China and Japan, one which has suspended trade talks with the U.S. and the other at an early stage of negotiations, are likely to be much more wary of the term sheets that guide any talks, adding conditions and fallbacks to protect against U.S. second-guessing any agreement. The U.S. has demonstrated it’s more than ready to pile on amendments even to “final” arrangements. That the agreement with Mexico forestalled tariffs being used to stem immigration and also spur increased agricultural trade is likely to prompt insistence on firm guardrails to keep any future agreements within agreed-upon boundaries.

The U.S.-Mexico agreement announced late Friday itself will not be final until early September. It contains no guarantees or ceilings governing the number of migrants crossing the U.S. border seeking permanent asylum. When Trump took office border crossers intercepted were not at crisis levels, running about 20,000 a month, the lowest rate since 1971. Trump administration efforts to close the border heightened awareness through Central America of U.S. asylum law and added urgency – plus a lot of smuggler opportunism –that caused the number of asylum seekers to skyrocket and to change in character, to family units including children.

A key element in Mexico’s set of proposals that clinched the U.S.-Mexico pact is one that preceded the latest negotiations, to use the newly created – and untested – National Guard to strengthen that country’s southern border as well as patrol migrant routes to the U.S. border. The 60,000 person unit was created in late February.

Another key element, this one offered by the U.S., is to not follow through on President Trump’s March threat to completely sever U.S. development aid aimed at gang violence, malnutrition and corruption in Honduras, Nicaragua and El Salvador and in fact spread it wider, to include southern Mexico. Congress made nearly $6 billion available and its effectiveness depends on how well the U.S. sustains its administrative mechanisms, the importance of which has been severely downgraded.

The Group of 20 meeting of heads of state in 10 days in Japan affords an opportunity for a breakthrough with President Xi Jinping and also a lurch into international negativity should no breakthrough occur. If President Trump can return to Washington with at least a resumption of trade negotiations in hand the jeopardy to global growth will have been allayed for the time being.

Without a breakthrough the countdown to Trump’s decision whether to impose worldshaking 25% tariffs on $300 billion a year in China goods will be a dark cloud over markets in the second half, with uncertainty helping paralyze business planning and capital investment well beyond the United States. That failure would overwhelm any remnant gloss generated by the Mexico deal.