Mexico Trumps the Land of Opportunity
(Hey! Trump!) We don’t need another brick in the wall. It’s only going be fencing in some parts, and some areas along the 1,900 mile expanse have obstacles that are impossible to build on. And, you know, it will cost somewhere between $20 billion[i] and $70 billion[ii] USD. Everyone’s screaming about it, right? There was probably something posted about it on social media today. But, one of the places it surprisingly doesn’t seem to be of much concern is Mexico itself.
That’s because the Latin American nation’s economic growth is outperforming expectations[iii]. Consumer confidence is high, and Mexican exports have jumped favourably, especially thanks to a stronger exchange rate for the peso[iv].
According to Mexican officials[v], six million American jobs rely on exports to Mexico. If Trump axes[vi] the North American Free Trade Agreement (NAFTA), as he would like to, he’s putting those jobs at risk. That’s an interesting proposition from a President so keen on promising to revitalize the American job market.
Considering that Trump backed the USA out of the Trans-Pacific Partnership (TPP) on day three of his presidency[vii], however, it looked like he may very well act on his desires. The Mexican and American economies have become almost inseparably intertwined, which means that while damage to Mexico would be exponential compared to that done to America, that doesn’t mean America gets off scot-free.
If things go south with NAFTA, Mexico will be free to impose tariffs of up to 35% on goods imported from the USA. Mexico has “bound rates” with the World Trade Organization that are much higher than the United States, whose “bound rate” is 4%. In other words, NAFTA is preventing serious tariff hikes on the Mexican side for US exporters[viii].
The US President was convinced to renegotiate the agreement rather than scrap it entirely after level-headed phone calls with the leaders of both Mexico and Canada. It can only be assumed that one of the leaders uttered a variation on the phrase, “Donny, please, don’t do this.”
It’s almost as if Trump is cutting off his nose to spite his face. The desire of Mexico’s Economy Minister was to restructure NAFTA with elements of the TPP[ix] in order to help their North American alliance compete with China’s low production costs. The chance of lowering your production costs, when you’ve just eliminated free trade, are slim to none. Trump would have a better chance at climbing the Great Wall of China.
Ildefonso Guajardo, Mexico’s Economy Minister, warned Trump that he had the makings for success “in his pocket”, but that if he got “greedy”, he could snatch defeat from the jaws of victory. Blocking out Mexico, and their obvious economic growth, would be a profoundly foolish move for the President.
Speaking of foolish moves, this trade barrier Trump is attempting to erect is, of course, not the only wall Trump is keen on building. Keen, too, is his ardent promise that Mexico is going to pay for the ridiculous structure.
“The wall is the most idiotic thing I’ve ever seen or heard in my life,” said real estate tycoon Jorge Perez, who has built Trump-branded towers in Florida. Perez was raised in Colombia by Cuban parents.
“A wall for what? You think a wall is going to stop people that are hungry? Good employment in Mexico, economic growth in Mexico, equality is going to stop people from coming over the border.”
Equality, of course, that NAFTA was starting to provide. Perez said that he “politely declined” Trump’s offer to build the wall, joking about “which side of the barrier he would end up on”[x].
One way Trump plans to force Mexico to pay for the wall is a 20% tariff on goods imported from Mexico[xi], but this would only serve to affect the prices of goods for Americans, which raises the question of who, then, is really paying for the wall.
Higher fees on remittances between the USA and Mexico was Trump’s other plan. Not only is this idea absurd, all it succeeds in doing is stealing money from the hands of the poor trying to support their families.
There are very few (if any) legitimate ways for Trump to make Mexico pay for the physical border wall that built his presidential campaign. Mexican President Vicente Fox Quesada, in a particularly memorable moment, tweeted about Mexico’s position on the border wall situation.
There is some positive news coming out of Mexico, however, showing the world that they can stand on their own two feet if things come to a head with the USA.
The FinTech sector in Mexico is continuing to grow. Interest and attitude[xii] are in the right place to start affecting real change, and the Mexican government’s new financial inclusion strategy could give FinTech companies real opportunities. Only 44% of the adult population have bank accounts, and FinTech can be used to bridge the gap[xiii].
Mexico’s FinTech industry can do a lot of good by solving issues and have a meaningful impact. The tech wave that began in 2012 has fostered some brilliant minds in Mexico, leaving it as the perfect environment for VCs and angel investors[xiv] to work their magic and turn Mexico into a FinTech hub. The addition of immigrant entrepreneurs to the home-grown talent pool, from a variety of nations like Spain, Brazil, and Switzerland, gives Mexico a similar make-up to the Silicon Valley success story.
Almost as if he were handing Mexico a golden ticket, President Trump has issued new restrictions on H-1B visas for skilled workers, by proposing changes to the existing lottery system or demanding that applicants hold a U.S. Master’s degree. This could have serious adverse effects on the American tech industry, who rely on skilled workers from a variety of nations[xv].
Companies like Tech Mahindra – one of the largest I.T. companies in India – are cashing that golden ticket, increasing their operations in Mexico[xvi]. Doing so allows the company to easily set up English-speaking operations, and send people quickly and cheaply into the US to do work.
“There’s a basic misunderstanding of what powers the American innovation economy. It’s human ingenuity, not coal,” Peter Hebert, co-founder and managing partner at Lux Capital, said.
“The tech talent pool that transformed Silicon Valley into an American economic marvel, sending U.S. technology to the entire world, is itself a pastiche of people from the entire world—India, China, Pakistan, Israel, Iran.”
In fact, Jalisco province, Mexico, pulled a fast one, playing on the emotions running high in the American tech world. They took out a full-page advert in Politico offering work with tech companies, saying that the Governor is “loosening immigration rules for new companies” and “ditching an old requirement” for companies to have only 10% foreign employees[xvii].
The secretary of innovation in Jalisco, Jaime Reyes, explained the driving force behind the bold move.
“We’re putting a strategy together with the Mexican consulate to make it easy for people to come work in Jalisco seamlessly, as if they were in Silicon Valley […] or in their home countries,” Reyes said.
“We will help to establish them with schools and transportation and whatever they need.”
President Trump could very well be driving some of America’s best tech minds out of the USA, and dissuading those from other countries to emigrate. This means that the USA, if things continue on their current trend, will be missing out on the economic boon of shared technological advancement. Pretty soon, we could all be talking about Guadalajara and forgetting all about Silicon Valley.
Guadalajara is now considered to be Mexico’s tech hub[xviii], with people like long-time Silicon Valley figure Andy Kieffer, who runs Agave Labs[xix], setting up shop there. After the Chinese manufacturing industry exploded, affecting the fate of electronics in Guadalajara, the city was forced to move onto more complex products.
“If you want to predict the future in the Mexican tech sector, take the previous 15 years of what happened in the Bay Area [Silicon Valley], and compress it into a single year, and then watch it happen in fast forward,” Keiffer said
But the road ahead isn’t without its bumps, as Mexico is still lagging behind in its intellectual property (IP) development, with its residents receiving only 172 U.S. patents in 2015[xx]. This is compared to the 8,116 China received, or the 17,924 achieved by South Korea. Now, with the looming threat of the USA pulling out of NAFTA, Mexico now has an incentive to invest in its own IP. It may also spark their competitive spirit, choosing to no longer manufacture products for the U.S.
“[Mexican firms] are very much used to the idea that the big technology inventions get made in Switzerland or New Jersey, and that they will be the local partner of Novartis or Merck,” said Jorge Goldstein, a director and patent lawyer at Sterne, Kessler, Goldstein and Fox. The firm works out of Washington and focuses on intellectual property.
“Shaking up that model would be very good [because] there is no incentive for them to develop their own technology.”
We may see Mexico and Canada moving away from Trump’s America, growing stronger independently, and leaving the USA to clean up its own mess.
It would be a grave error for Trump to isolate the USA from the future Mexico is building. It may come to pass that what the President fears most will come true, except instead of Mexicans “taking” American jobs, Americans will be fleeing to Mexico as a land of opportunity.
[i] Chris Graham and Robert Midgley for The Telegraph, “Mexico border wall: What is Donald Trump planning, how much will it cost and who will pay for it?”, January 25, 2017.
[ii] Lisa Mascaro for The LA Times, “Trump wants a border wall, but few in Congress want to pay for it”, April 24, 2017.
[iii] Dave Graham for Reuters, “Mexican growth beating expectations for first time in government: finance minister”, April 21, 2017.
[v] Eduardo Porter for The New York Times, “Mexico’s Potential Weapon if Trump Declares War on Nafta”, January 24, 2017.
[vi] Jeff Mason and David Lawder for Reuters, “Trump says was ‘psyched to terminate NAFTA’ but reconsidered”, April 27, 2017.
[viii] Mary Amiti and Caroline Freund for Liberty Street Economics (Federal Reserve Bank of New York), “U.S. Exporters Could Face High Tariffs without NAFTA”, April 17, 2017.
[ix] Jonathan Wheatley and Jude Webber for Financial Times, “Mexico calls on Trump to reuse TPP deals to reanimate Nafta”, May 1, 2017.
[x] Blake Schmidt and Jonathan Levin, “Donald Trump’s wall the ‘most idiotic thing I have ever seen’, says developer asked to build it”, February 1, 2017.
[xi] Patrick Gillespie for CNN, “A 20% Mexico tariff would pay for the all. But it would hurt Americans”, January 26, 2017.
[xvi] Bess Levin for Vanity Fair, “Trump’s Immigration Crackdown is Driving Tech Jobs into Mexico’s Arms”, May 4, 2017.
[xvii] Hannah Kuchler, Aliya Ram, and Jude Webber for Financial Times, “Trump visa crackdown spurs tech movement to Mexico”, May 4, 2017.
[xviii] Matt Kendall for Nearshore Americas, “Infographic: How Guadalajara Became Mexico’s Silicon Valley”, December 19, 2016.
[xix] Michael Carney for Pando, “How a Valley veteran found happiness and opportunity building tech in Mexico”, May 21, 2013.
[xx] Craig Torres, Nacha Cattan, and Susan Decker for Bloomberg Politics, “Trump’s Nafta Threats Push Mexico to Play Catchup on Innovation”, May 4, 2017.