NAFTA agreement to boost investment in Mexico by 25% in some sectors

If the United States, Canada and Mexico come to an agreement in the coming days, weeks or months over the revised North American Free Trade Deal, Mexico stands to benefit significantly from increased investment. The stakes however are high, as 30% of Mexican exports could be subject to US tariffs according to Lyman Daniels, president of CBRE Mexico.

The trilateral NAFTA agreement has been a source of contention and mystery within North America since the election of President Donald Trump. The US President took the free trade agreement off the chopping board last month, agreeing to renegotiate rather than drop the axe. However, the President’s initiative is to have the deal signed and sealed by the time ALMO steps into office in Mexico DF. 

The US position has been aggressive from the start. Demanding that the Mexicans and the Canadians fall into line, Trump said that an agreement will only be reached if its “totally on our terms”. For the Mexicans, this means giving concessions on the auto-industry in terms of parts, manufacturing and wages – all intending to increase trade for the US. 

A deal was reached last week between Mexico and the US with the threat of leaving Canada out in the cold. The revamped trade deal – if it goes ahead without the US’s northern neighbour – would see the US keep its initial FTA with Canada whilst establishing a new bilateral trade agreement with Mexico. For the Mexicans, this would mean tariffs being established on roughly 10% of their trade with Canada. 

“There are things that we don’t control, particularly the political relationship between Canada and the U.S., and we definitely don’t want to expose Mexico to the uncertainty of not having a deal,” said Luis Videgaray Caso, Mexico’s foreign minister in response to the dispute. “Not having a trade agreement with the U.S., that’s a substantial risk to the Mexican economy. Literally millions of jobs in Mexico depend on access to the U.S. market.”

On the other hand, if the trilateral agreement is reached then there will be an air of clarity surrounding Mexico, including a period of reactive planning and investments driven by the stability of a trade agenda. The policies of the incoming Mexican government will not be juxtaposed by, but driven through the renegotiation. 

“It will be more a moment of planning than of caution, since we remember how the investments which were stopped were those made in a medium to long term horizon, and of course, a greater certainty and clarity of the new policies of the new government. They would encourage investment,” said Lyman Daniels, president of CBRE Mexico.

CBRE Mexico is a real estate and investment consulting firm which is headquartered in Los Angeles but operates globally. The firm has offices scattered across Latin America and the Caribbean including in Mexico City. The consulting firm featured in Expansión Magazine’s 500 Most Important Mexican Businesses last year. 

Daniels said that the economic impact of a favorable treaty is very positive and sends a message of optimism between Mexico and the United States to the market. In a sense, when the world is grappling with an impending trade war, it makes good business sense for all. “We could see in the following year an increase of up to 25% in the number of companies making new expansions and investments,” said Daniels in reference to the real estate market. 

In the north of the country – where projects stopped due to market volatility and uncertainty over the deal – Daniels contends that investment could boom by up to 40%. He states that this is an enormous opportunity which will need government investment as well as support for innovation and development. He argues that Mexico must play its cards right to ensure stability in its own economy and of the benefits of a returning manufacturing industry.

“Another key aspect of the signal change in the market is that the manufacturing industry could resume its role as an engine of industrial real estate demand the following year, a place that the logistics industry took over the entire period of NAFTA negotiation. Distribution as well, without doubt, confidence is renewed and that drives the two segments that were most affected by the uncertainty,” concludes Daniels.