Over the last two years, the global economy has witnessed seismic shifts in its natural order.
Since 2016, the Brexit referendum, the election of Donald Trump in the US, Emmanuel Macron’s rise to power in France, and the deteriorating relationship between Russia and the West are just some of the changes that are reshaping global trade relationships. US protectionism has also emerged as a threat to the status quo.
As President Trump continues to press ahead with his campaign promises and the UK battles internally to hash out a new trade relationship with the EU, other nations directly affected by these decisions are proactively seeking to reassert their position in the global economy and extricate themselves from potentially damaging relationships.
Jostling for position
On 21 April, Mexico and the EU reached a new agreement on trade, replacing the previous deal struck in 2000 and aiming to dismantle the barriers to trade between Mexico and the EU. Once in place, practically all goods trade between the two parties will be duty free enabling the EU to increase its exports to Mexico; and both Mexico and the EU will be able to bid for government contracts in each other’s tenders – even at state level.
The deal was struck in the context of a deteriorating relationship between Mexico and the US and Donald Trump’s increasingly isolationist stance on global trade, with US protectionism escalating still further. The North American Free Trade Agreement (NAFTA) has become a bone of contention in Mexico–US relations. President Trump has long criticised the deal, labelling it a “disaster” and a “cash cow”; during his presidential campaign he repeatedly promised to scrap it.
Talks to renegotiate NAFTA are ongoing, but have reached a sticking point over a number of unresolved issues. The US House Speaker Paul Ryan declared that 17 May was the deadline for reaching a renegotiated in order for it to be passed before the end of 2018; but as that deadline has not been met, the future of the NAFTA negotiations remains unclear.
Another factor damaging the relationship between the US and Mexico is Trump’s stance on migration and his promise to ‘build the wall’. In April a caravan of almost 200 Central American migrants travelled to the north of Mexico seeking asylum in the US. Most of the migrants were turned back from the border, having been told that the border crossing had “reached capacity”.
In response, Trump tweeted: “[…] I have instructed the Secretary of Homeland Security not to let these large Caravans of people into our Country. It is a disgrace. […] WALL”. Trump recently called for a clause to be written into NAFTA enshrining Mexico’s responsibilities to stop migrants from reaching the US border. The Mexican Foreign Minister called this “unacceptable”.
Despite the Democrat inspired laws on Sanctuary Cities and the Border being so bad and one sided, I have instructed the Secretary of Homeland Security not to let these large Caravans of people into our Country. It is a disgrace. We are the only Country in the World so naive! WALL
— Donald J. Trump (@realDonaldTrump) April 23, 2018
In light of this deteriorating relationship, the EU-Mexico trade deal signals Mexico’s intended shift in economic policy away from dependence on the US. Currently, the US is Mexico’s largest trading partner and that is unlikely to change any time soon. However, the deal will boost EU-Mexico trade and decrease Mexico’s dependence on its northern neighbour. In 2017 Mexico’s second largest export market was the EU, while the EU was Mexico’s third-largest source of imports.
The new deal will not only create better trade conditions for most goods (Mexico will scrap import tariffs on foodstuff such as poultry, cheese, chocolate and pasta), but other sectors – finance, e-commerce and agriculture – will benefit too.
One of a kind – for now
Mexico is not the only Latin American country to look to the EU for an opportunity to boost trade. On 1 November 2017, Cuba and the EU began the provisional application of the Political Dialogue and Cooperation Agreement (PDCA), which “creates an enabling framework for enhanced political dialogue, for improved bilateral cooperation, as well as for developing joint action in multilateral fora”.
The PDCA covers political dialogue, cooperation and sector policy dialogue and trade and trade cooperation. In other words, not only does the PDCA stand to provide economic benefits to both parties via the establishment of principles of international trade and cooperation on customs, trade and investment, it also provides a framework that promotes a close political relationship between Cuba and the EU. Again, this flies in the face of US policy under President Trump.
During his presidential campaign, Trump was highly critical of Obama’s policy of tentative normalisation of relations with Cuba, and as president he has taken steps towards reversing that policy. On 8 November last year, Trump announced restrictions on business with a number of organisations with links to the Cuban military, intelligence and security agencies, and has reduced the number of US diplomatic staff in Cuba to 10 after a series of mysterious “attacks” impacting staff’s health.
Analysts suggest that appointments of political figures that harbour hostilities towards Cuba to key national security positions will further estrange the US from Cuba and re-divert foreign policy away from rapprochement.
Latin America diverts its gaze
As relations between the US and key Latin American countries become increasingly strained, those countries’ deals with the EU are becoming survival mechanisms as they seek alternative relationships. However, they should also be understood as a shift in both their own and EU policy away from dependence on the US.
The deals suggest the EU’s desire to seek new markets in light of Trump’s isolationist rhetoric and the unknown impact of Brexit. In addition to the Mexican and Cuban trade deals, the EU is currently in the process of negotiating a trade agreement with the four founding members of MERCOSUR – Argentina, Brazil, Paraguay and Uruguay – to whom EU exports totalled €41.5 billion in 2016. MERCOSUR negotiations were relaunched in May 2016 and look set to conclude by the end of next year at the latest.
Economically, the deals will have tangible implications for Mexico, Cuba, the MERCOSUR countries and the EU, but perhaps the significance of the deal goes beyond its economic dimensions. While Trump repeatedly dominates the headlines with his unapologetic tweets and unpredictable foreign policy, other global powers are adapting to an approach that increasingly circumnavigates the US.
With so much of the prevailing political order under threat it is easy to overlook the significance of new alliances. It could be that once the dust settles, these new trade deals may undermine both the economic and the political supremacy of the US. Conversely, they stand to integrate Latin American economies more closely into the global market and provide them with huge opportunities for growth.
More and more, countries are reacting to US protectionism and Trump’s self-isolation with integration – and it may just change global order as we know it.