Foreign Direct Investment in Latin America and the Caribbean 2017

20 Executive summary
Economic Commission for Latin America and the Caribbean (ECLAC)
States from the Trans-Pacific Partnership (TPP) and from NAFTA, tariffs of 45% on
imports from Mexico, the reduction of the trade deficit and the reform of corporate tax
legislation to stimulate the repatriation of companies, jobs and capital. These proposals
were grouped under the collective slogan and policy of “American First”, which is aimed
at repositioning the United States as the main hub of global manufacturing, especially
in the automotive industry.
The effects of the new trade and industrial policy discourse began to be felt
immediately after the elections. In the first 10 weeks that elapsed between the elections
and his taking office, the President-elect concentrated heavily on the automotive
industry and concluded a number of agreements with United States manufacturers in
the sector to withdraw planned investments in Mexico or commit to reshoring plants
and jobs to the United States.
On the basis of these initial actions, once the new Administration took office in
January 2017, the President signed executive orders on a broad range of issues, in order
to create institutions, streamline regulatory process and authorizations and strengthen
mechanisms for boosting manufacturing in the United States. The Administration also
began to review environmental regulations affecting the motor vehicle industry, including
Corporate Average Fuel Economy (CAFE) Standards, which the outgoing Administration
had recently strengthened as part of efforts to combat climate change and drive the
development of hybrid and electric vehicles.
After this first raft of reforms and deregulation, the Administration shifted its attention
to NAFTA. Although it was initially thought that the United States would withdraw from
the agreement, on 18 May 2017 the Administration asked Congress to approve the
initiation of talks with Mexico and Canada after a 90-day period, with a view to updating
NAFTA. The idea is apparently to modernize the agreement’s provisions on intellectual
property rights, regulatory practice, public enterprises, e-commerce, services, customs
procedures, sanitary and phytosanitary measures, employment, the environment and
small and medium-sized enterprises.
Both Mexico and Canada have given their support for updating NAFTA, which was
adopted 23 years ago, and have indicated a desire to preserve the regional automotive
production chains. Although the United States has afforded emphasis thus far to regulatory
issues, the negotiations on tariffs and rules of origin will be crucial in reaching a new
agreement. In this framework, any major changes to the existing trade preferences
could significantly upset production and supplier chains in North America.
Although it is too soon to gauge the effect of these new policies —many of which
have yet to be implemented— and the scope of the NAFTA negotiations is not fully
clear, the alteration of automotive production chains would be highly damaging to jobs
and competitiveness. In such a scenario, China could see its dominant role reinforced
as a producer of parts, components and specialized machinery, given the sheer size
and low costs of its motor vehicle industry.
Mexico’s automotive industry is strongly positioned at this juncture of pressures
from the technological revolution combined with the shifting focus of trade and
industrial policies in the United States. However, this will not shield it from significant
challenges to its stature as one of the largest global producers and exporters. Beyond
the trade negotiations currently under way, Mexico will have to base its responses on
new sectoral and technology policy efforts, framed by the current reality of the global
automotive industry.