Mexico’s election could change the trade landscape

Andres Manuel Lopez Obrador, the progressive former mayor of Mexico City, won a landslide victory in Mexico’s national elections last Sunday. Lopez Obrador has promised to end politics as usual — and the resulting corruption — in his country. His victory is a milestone in Mexican politics, but the parliamentary majority of his Movement for National Regeneration (MORENA) is key to his ability to remake his country. His supporters are delighted; detractors warn that the leftist firebrand’s policies will usher in chaos and undermine progress in the economy.

Lopez Obrador has run for president three times. In 2006, after losing by half a percentage point, Lopez Obrador charged that he had been robbed and refused to accept the results. The street protests that followed and the establishment of a “Cabinet of Denunciation” convinced many that he was an anti-democratic extremist and his political career was over. Undaunted, he ran again in 2012, losing this time by a 6.6 percent margin.

Last weekend, he rode a tide of popular disgust with corruption and incompetence to the largest electoral margin in a presidential election in over three decades, winning 53 percent of the popular vote and beating the second-place finisher by nearly 30 percentage points.

More importantly, MORENA prevailed in legislative elections, making Lopez Obrador the first Mexican president since 1997 to enjoy a legislative majority. MORENA has joined with the Labor Party and the conservative Social Encounter Party to form the Together We Will Make History coalition: It will hold 303 of 500 seats in the lower house of the federal Congress and 70 of 128 seats in the Senate. In addition to controlling both houses of the national legislature, the coalition claimed the governor’s house in four states, the mayor’s office in Mexico City, and congressional majorities in 12 states and many local offices.

Lopez Obrador faces daunting problems: endemic corruption, political incompetence and growing levels of violence. Pointing to the protests that followed his 2006 defeat, critics charge he has authoritarian tendencies, and little understanding of modern economics. They fear that his statist, interventionist mindset will lead Mexico down the path of Cuba and Venezuela. Supporters say that is fear-mongering, that Lopez Obrador has moved toward the center over his career, and that indifference to the country’s neediest has been built into the political system. Radical change is required. His first major speech after the election, delivered Monday, reassured markets.

Lopez Obrador’s politics and populism resemble those of U.S. President Donald Trump and there is fear that there will be fireworks between them. Trump congratulated Lopez Obrador on his win in a tweet, adding that “I look very much forward to working with him.” Lopez Obrador called the message “very respectful” and reciprocated a desire to work with the U.S. The key question is how far the two men will go to support — or destroy — the North American Free Trade Agreement. Trump’s hostility is plain. Lopez Obrador said that he would follow his predecessor’s policies. It is not clear if the deal can be salvaged, however, and uncertainty alone may be a victory for Trump: Businesses want predictability and the doubts Trump has created are enough to influence investment decisions.

Japan has a stake in that future. Bilateral trade between Japan and Mexico has reached $20 billion a year, expanding 64 percent since 2005. Japan is Mexico’s fourth-largest trade partner; Mexico ranks 15th on the list of Japan’s trading partners. As important as trade is investment. Japan has invested heavily in Mexico — $14 billion over the last two decades — as part of its supply chain to provide cars for the U.S. market: about 700,000 cars are now shipped across the border each year. Consistent with that trend has been the tripling of the Japanese corporate presence in Mexico: nearly 1,300 Japanese companies operate in the country.

While officials of the Japan External Trade Organization expect Lopez Obrador’s policies to have minimal impact on those firms’ operations, there is worry about NAFTA. Last year, a Japanese auto parts manufacturer abandoned plans to invest $90 million in Mexico, decided to build in the United States instead. Other Japanese companies have proceeded with investment plans but there is no mistaking the concern.

Mexico will diversify its trade to hedge against the Trump factor. Today, 72 percent of its $435 billion in annual goods exports go to the U.S. But the country has free trade agreements with 46 countries, and it has worked to increase trade with Asia in the aftermath of the Trump election. With Japan purchasing just 1.3 percent of Mexico’s exports last year, there is room for growth; energy products are one opportunity. This could give Japan a chance to alter its trade landscape. .