For many years, the United States and Mexico have maintained a close relationship. Given the significant dependence of the Mexican economy on the United States, a key question arises: could the US elections, specifically the November 2020 election, affect Mexico’s economic future?
The period leading up to the election was undoubtedly complex for US-Mexico relations. President Trump’s 2015 presidential campaign began with harsh criticism of Mexico, labeling migrants as “intruders” and “violators.” He further pledged to make Mexico finance the construction of a wall along the southern US border.
In 2018, Trump also targeted Canada, citing national security concerns to impose tariffs on certain Canadian exports. He publicly criticized Canadian Prime Minister Justin Trudeau, calling him “dishonest” and “weak,” amidst renegotiations of the North American free trade agreement.
However, in the final year of his presidency, Trump arguably fostered a stronger relationship with Mexican President Andrés Manuel López Obrador than with Trudeau.
In July, López Obrador visited the White House to celebrate the signing of the revised North American Free Trade Agreement, rebranded as the USMCA (United States-Mexico-Canada Agreement). While not drastically different from the original agreement of over two decades prior, it provided Trump with a symbolic victory. Trudeau did not attend, but López Obrador made it his first foreign trip as president, despite criticism from various quarters on both sides of the border.
The 2020 US Election and the Mexican Peso
During the initial debate between Democratic and Republican candidates regarding pandemic stimulus legislation, the Mexican peso experienced a weakening against the US dollar. This depreciation was largely attributed to the unfolding political discussions in the US.
According to Citibanamex bank notifications, the dollar exchange rate in Mexico rose slightly, reaching 21.62 pesos that week. Consequently, numerous economists predicted a less optimistic outlook for the Mexican economy due to the US elections scheduled for November 3, 2020.
Potential Economic Impacts on Mexico
So, how might the US election impact the Mexican economy? Polls at the time indicated a likely victory for Democratic candidate Joe Biden. While a Biden win was anticipated to strengthen ties between the two neighboring countries, especially after periods of tension under President Trump regarding border security, trade disputes, and drug trafficking from Mexico, economic stability in Mexico could still be affected under a Biden administration.
Despite past criticisms from President Trump towards Mexico, President López Obrador had, in the preceding two years, cultivated a surprisingly robust alliance with him. AMLO, as he is commonly known, agreed to Trump’s plans to deter individuals attempting to immigrate to the US illegally. This approach, allowing for less friction in international trade relations, was relatively well-received in Mexico, especially among businesses with international interests.
Possible Scenarios and Policy Shifts
Looking ahead, a Biden presidency was expected to reverse Trump’s stringent immigration policies. He pledged to halt the diversion of Pentagon funds for border wall construction – a wall Mexico, notably, never paid for.
Biden aimed to refocus US efforts on supporting the stability and development of impoverished Central American nations. These nations were the source of a significant portion of asylum seekers attempting to enter the US in recent years. It was not anticipated that these policy shifts would cause López Obrador to regret his amicable relationship with Trump.
However, analysts on both sides of the border did not foresee a complete return to pre-Trump hemispheric politics.
A victory for Joe Biden in the US presidential election could accelerate the shift towards renewable energy sources in the region. This would be driven by his commitment to re-enter the Paris Agreement and enforce the energy chapter within the USMCA. Such a scenario could necessitate Mexico reconsidering its current energy strategy, which heavily emphasizes hydrocarbons.
Under President López Obrador, Mexico has aimed to revitalize its state-owned energy monopolies, Pemex (petroleum) and CFE (electricity), intending to leverage them as engines for economic growth. However, some analysts viewed a Biden victory as a crucial catalyst potentially compelling Mexico to alter course and adopt a greener energy strategy.
A Biden administration was expected to prioritize enforcing the emissions targets of the Paris Agreement as an initial step, according to Juan González, a Biden advisor at the time. González, then director of JSG Strategy, previously served as Special Advisor to Biden during his vice presidency.
The Paris Agreement Context
The Paris Agreement, established in December 2015, has the primary objective of limiting global temperature increase to well below two degrees Celsius above pre-industrial levels during this century.
Mexico’s national contribution to the Paris Agreement was considered “insufficient” by the Climate Action Tracker, a governmental climate action monitoring organization.
The group expressed doubts about Mexico fulfilling its commitments, citing the country’s lack of ambition, its reduced support for renewable energy, and its response to the coronavirus pandemic. This combination, according to the group, had placed the country’s emissions on a “worryingly upward trajectory.”
According to López-Mistre, a more sustainable energy strategy is inevitable for Mexico, irrespective of the US administration. He noted the growing popularity of environmentally conscious investments. Furthermore, he argued that relying on Pemex and CFE as drivers of growth was unrealistic and likely misguided.
“Pemex will not be the growth engine it was during the 1970s, given structural reasons such as the Mexican state’s capacity to acquire new debt, the natural decline of Mexico’s oil reserves, and global megatrends,” López-Mestre stated.
The strategy of rescuing old energy monopolies is not optimal. Adjustments will be necessary, as this approach may not generate the energy required for Mexico’s economy in the near term.
