Joe Biden is the new US President: Consequences for the Mexican economy


published on 13 November 2020 | reading time approx. 4 minutes


The USA has always been a country of contrasts and extremes, and divided in its views. Homeless or tech billionaires, religious or materialistic, trendy diet or fast food, pick-up or Tesla, big city or countryside, ban on alcohol or open carry, Republican or Democrat. The counting of the ballots for the election of the 46th president showed it again in black and white that – even mathematically – the country remains divided. But Americans do have one thing in common – they are patriotic, they have a migrant background but are against immigration, the world extends from US west to east coast.


As far as their interest in foreign policy goes, it is limited to influences that could harm their own country, and so two-thirds of US citizens follow the view that China is a "rogue state". On that point, Republicans and Democrats are not far apart in their advocacy of trade barriers. It should also be remembered that the construction of the US-Mexico border wall was by no means the idea of Republican President Trump; the first organised border fortifications had been launched under Operation Gatekeeper during the presidency of Democratic President Bill Clinton.


From hatred to fraternisation

However, the outgoing President Donald Trump had managed, through his idiosyncratic communication skills and rhetoric, to spectacularly present issues that had long been present. The US trade deficit has been a thorn in the side of US citizens before, but nobody made as much noise about it as Donald Trump when he took office. He cancelled the Trans-Pacific Partnership (TPP) with countries like Japan and Australia on his very first day in office, even though the TPP under Barack Obama's administration was explicitly designed to counter China's growing influence. He imposed punitive tariffs on China, Germany and the EU, threatened Mexico with termination of the North American Free Trade Agreement and dismantled the World Trade Organisation. But Donald Trump fell silent on his ruthless methods during the election campaign, as trade deficits continued to rise during his term of office. Republican President Trump did not seem to differ much from his Mexican left-wing counterpart Andrés Manuel López Obrador. Trump insulted and antagonised his border neighbour, threatening to withdraw from the free trade agreement that was so important for both countries, but after lengthy negotiations and reconciliation the USA, Mexico and Canada agreed on a successor agreement, which at first glance appears to be old wine in new bottle and certainly benefits all three countries. Initial hatred turned into fraternity between Trump and López Obrador for economic and political reasons. The Mexican president had even visited Trump on his first and so far only foreign trip to support him in his election campaign, because López Obrador had cleverly figured it out that the Mexican economy was still dependent on the USA. Currently, the Mexican media are mainly concerned with the question of who actually won the elections in the USA, since despite the majority of democratic voters the Mexican president has not yet congratulated Joe Biden on his victory.


Racism puts a strain on political relations

Certainly, Mexicans do not forget the racism that Donald Trump fomented against the Mexican population, with insults and deportation measures catching the attention of the media. However, almost no one seems to forget that the highest number of deportations so far has taken place under the administration of Democratic President Obama. Nevertheless, the Mexicans hope that Biden, as the new president, will follow a more immigration-friendly policy with fewer deportations and more relaxed visiting and visa regulations. These expectations are based, among others, on the Democrats' election programme which promised easier naturalisation for immigrants without residence permits. 

Rules of the game between Mexico and the USA have been set

On the other hand, the presidency of Trump had a positive impact on the Mexican economy; although China is an important trading partner of Mexico, both countries compete with each other for the position of the largest import market for the USA, and therefore Mexico could benefit from the fact that the USA imposed punitive tariffs on Chinese products. Biden will use more diplomatic means to pour oil on troubled waters in relations with Germany, the EU countries and China, but in essence, the US approach to foreign policy has been the same under both Democratic and Republican governments, especially considering that Biden promised to be the President of all Americans. Mexico has secured its position by signing the new North American Free Trade Agreement USMCA, known in Mexico as "T-MEC". The rules of the game are therefore clear for Mexico and, after long negotiations, planning security has been restored for at least 16 further years. In the USA, the USMCA had to pass through the House of Representatives, where the Democrats formed the majority of the seats under the Trump administration. With the influence of the Democrats, rules to protect workers, including the establishment of an arbitration panel that can be called upon in the event of repeated violations of labour standards, were established under the USMCA. Crucial for the automotive industry is the regulation of the USMCA saying that a percentage of content of vehicles manufactured in the North American region (Regional Value Content) must be increased from 62.5% to 75% in a phased process. To this end, suppliers have already been obliged to establish themselves in the North American contractual territory or to transfer production processes from e.g. Asian countries to Mexico. In order to limit the number of new establishments in Mexico, the USA has come up with the new rule of the so-called "Labor Value Content": 40 percent of the content of a finished passenger car must be produced at an hourly wage of 16 US dollars, which is over 10 US dollars more than the average wage of a Mexican industrial worker. However, the scheme will not directly result in a serious increase in wages of Mexican industrial workers, but rather trigger further automation of processes to the benefit of the mechanical engineering and automation sector.

President Trump had pursued an aggressive policy of reducing taxes for US companies. Under the presidency of Biden, it is expected that these measures will be reversed, accompanied by a drastic increase in government spending. This will boost inflation in the USA, but will probably not be immediately accompanied by interest rate hikes, as the US Federal Reserve cannot afford to slow down growth by raising interest rates in the tough times of the coronavirus epidemic. So the dollar will fall, as was already observed before the election as pre-election polls were in favour of Biden. However, a weak dollar makes imports more expensive or makes imports less attractive for foreign sellers if the selling price is fixed in USD. However, Mexico lives off American consumption and sales to this large border neighbour. On the other hand, increased U.S. government spending and a policy where the focus is shifted from entrepreneurs and wealthy people to the middle and lower classes could create additional consumption incentives, which could then serve Mexico as a production country. In addition, the US Democrats had promised in their election programme to raise the minimum wage to USD 15. This would make domestic production in the USA more expensive and could shift further labor-intensive production processes to Mexico, while at the same time raising wages, thus creating demand for consumption.


Differing energy policies

But López Obrador and Biden have also very differing views, namely on energy policy. Like Trump, Mexico too has so far relied only on the oil industry and generated state revenue from that sector. Renewable energy and climate concepts have so far had no place in the Mexican government's concept for the economy. Biden, however, vowed to join the Paris Climate Agreement immediately upon taking office, which Trump had previously cancelled. Biden would certainly have still four years to develop domestic climate policy, but it should be expected that the pressure on Mexico to reduce CO2 emissions in the long run will increase. Oil revenues are essential for Mexico's state budget, but the costs of climate change curb Mexican competitiveness. Mexico must take advantage of the US climate change efforts and position itself as a versatile partner – from supplier of electric cars to the producer for the solar farm in Texas.



After considerable problems at the beginning of his office, Trump proved to be a reliable partner for Mexico and its president. They could evaluate each other’s actions and pursued similar strategies. With Biden, a diplomatic, calmer and more experienced president will now take office, who, together with his vice-president Harris, wants to stand against racism and xenophobia. The USMCA / T-MEC agreements set fundamental economic rules of the game with Mexico, but Mexico's economic stability continues to depend on US economic growth and consumption. Biden's climate policy could still put economic stumbling blocks in Mexico's way, but Mexico competes with the Chinese empire to dominate global trade and China has already committed itself to CO2 reduction in the Paris Climate Agreement. Let us hope that López Obrador would recognise the Democrat Joe Biden as the new US President and continue to foster the political and economic relations.


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