The modernisation of the 1994 North American Free Trade Agreement (NAFTA) has seen “very important developments,” though much remains to be done, Mexican Economy Minister Ildefonso Guajardo has said.

 NAFTA partners Mexico, Canada and the US are still at odds over many issues, Guajardo, who heads Mexico’s negotiating team, told reporters on Monday on the sidelines of an academic event, Xinhua news agency reported.

One of those issues is a proposal by the US to tighten the rules of origin in the automobile sector, a move both Canada and Mexico have opposed.

However, Mexico has made a counter proposal and the US has modified its original demands, so negotiators meeting in Washington over the past two weeks have been looking at both of those proposals, said Guajardo.

“In two weeks there have been very important developments in balancing out several topics of interest on the table in regard to Mexico and the United States, from a trade perspective,” Guajardo said.

“The thing is that there are many topics on the table,” said Guajardo, who added he plans to travel to Washington this week to check on the progress of the talks.

“There are automotive rules of origin, there are rules in the fiber optics sector, there are rules in steel, and we are reviewing the whole package of regulations,” said Guajardo.

NAFTA was subjected to renegotiation in August 2017 on the urging of US President Donald Trump, who believes the original trade agreement harms US industry and jobs.

Guajardo was at Mexico’s prestigious Colegio de Mexico to inaugurate a new postgraduate degree in international trade negotiation.

MEXICO CITY/OTTAWA (Reuters) – Canada, the European Union, Japan, Mexico and South Korea will meet in Geneva next week to discuss how to respond to threats by U.S. President Donald Trump to impose tariffs on U.S. imports of autos and car parts, officials familiar with the talks said.

The Trump administration has come under heavy criticism from automakers, foreign governments and others as it considers tariffs of up to 25 percent, a levy critics warn will hike vehicle costs, hurting auto sales and global industry jobs.

Several auto manufacturing powers have been talking to each other in recent days about their fears and a possible coordinated response to Trump’s “Section 232” investigation, which he ordered on May 23, into whether auto imports are a threat to U.S. security, sources say.

The probe could be completed within weeks, although similar ones ordered last year that led to tariffs of 25 percent on steel and 10 percent on aluminum took about 10 months. The Commerce Department has 270 days to offer recommendations to the president after such a probe starts. He then has 90 days to act upon them.

It was not immediately clear what kind of response the countries could be looking at, although Canada, the EU and Mexico retaliated with their own tariffs after Trump imposed levies on steel and aluminum imports in March. Another option is to fight the United States at the World Trade Organization (WTO).

Deputy ministers will gather in Geneva on July 31 to hear each other’s views, a Canadian official and a Mexican official told Reuters, asking to not be named because they were not authorized to talk to the media.

“The meeting is meant to bring together major auto producing nations so we can discuss our concerns over the U.S. Department of Commerce’s Section 232 investigation of automobiles and parts,” said the Canadian government official.

Mexico’s economy ministry confirmed Deputy Economy Minister Juan Carlos Baker will travel to Geneva for “work meetings about several subjects,” including meeting World Trade Organization (WTO) chief Roberto Azevedo. The Canadian foreign ministry declined to comment.

According to the WTO website, Azevedo will meet Baker on Monday, followed by Canada’s Deputy Trade Minister Timothy Sargent and Japan’s Senior Deputy Foreign Minister Kazuyuki Yamazaki on Tuesday. The Mexican official said the meetings were related to the auto tariff issue.

Eventual tariffs on autos could hit companies including Korea’s Hyundai Motor Co, Japan’s Toyota Motor Corp and Germany’s BMW, as well as global factories for U.S. brands General Motors Co, Ford Motor Co, and Fiat Chrysler Automobiles NV.

Trump’s agreement on Wednesday to refrain from imposing car tariffs on the EU in return for reduced trade barriers for U.S. products has helped cool fears of a trade war, but his final decision will not be known until the security investigation is concluded in coming months.

The U.S. automakers lowered their full-year profit forecasts on Wednesday due to the trade frictions, and their stocks fell as investors bet the disputes would hurt margins and sales.

Although hopes of a breakthrough in U.S.-EU trade talks boosted carmakers on Thursday, the planned meetings are a sign that auto-producing nations want to prepare for the worst.

MANAGED TRADE

Canadian Foreign Minister Chrystia Freeland raised the need for “cooperation by major interested nations” regarding the U.S. auto investigation during a meeting in Ottawa with South Korean Trade Minister Kim Hyun-chong last week, the South Korean ministry said in a statement after the meeting.

On a tour that also took in the United States, Kim broached the idea of working together to face tariffs at a meeting of the Pacific Alliance trade bloc in Mexico on Monday, said another Mexican official and a diplomat with knowledge of the matter, asking to remain anonymous because they were not authorized to speak about it.

Officials consulted by Reuters in Canada, Mexico and South Korea all said such discussions were preliminary, with another Canadian official characterizing them as comparing notes on the state of play of the tariff investigation, rather than discussing a coordinated reaction in detail.

“We have checked and listened to each other’s stance. However, as the auto tariff probe is still under way, it’s hard to know how things will turn out at this stage,” said a South Korean trade ministry official who declined to be named because he was not authorized to talk to the media.

“(Probe) results should come out first to work on a joint response,” the official said.

Canada is concerned South Korea may achieve an exemption that would give it a competitive advantage, the diplomat said, after the Asian country accepted quotas on its steel exports in return for an exemption from the metals tariffs that hit Canada, Mexico and other allies.

Ahn Dukgeun, a Seoul National University professor who advises the government on trade matters, said South Korea’s government was divided over what course to take.

“South Korea is at crossroads,” he said, on whether to “deepen managed trade” with the United States or to get tough, such as complaining to the WTO and using retaliatory tariffs.

Because of varying domestic rules on tariff retaliation, coordinating any action between several countries “quickly becomes fiendishly difficult,” the diplomat said.

“The idea is that we want to know that if we go to the WTO, if we use NAFTA (the North American Free Trade Agreement) in our case or if we retaliate,” our partners will be doing similar things, said the diplomat.

The conversations are more intense than before the steel and aluminum tariffs, the diplomat and the Canadian official said. One reason may be that countries now know Trump does not hesitate to pull the trigger on tariffs.

Another is the economic weight of the auto industry. The United States imported $173 billion of cars and $70 billion of auto parts in 2016, compared to $21 billion of steel

PUERTO VALLARTA, MEXICO — 

Led by Mexico, major Latin American nations pledged to deepen commercial and economic ties on Tuesday as they sought to counter the risk of a deepening trade war sparked by U.S. President Donald Trump’s “America First” policy.

Leaders of the Pacific Alliance and Mercosur trading blocs met in the Mexican resort city of Puerto Vallarta, seeking to present a united front against potential disruptions stemming from Trump’s threats to slap new tariffs on major markets.

“The aim was to strengthen the links between the two most important trade blocs in Latin America,” said outgoing Mexican President Enrique Pena Nieto, who has spent much of the past two years mired in trade negotiations with Trump.

“Today we’re sending the world a clear signal we’re moving onward with regional integration and free trade,” he added.

Later this week, top Mexican officials will renew talks with the Trump administration in Washington aimed at renegotiating the North American Free Trade Agreement (NAFTA).

Mexico is heavily dependent on the United States as an export market and Trump’s threat to pull out of NAFTA have rattled investors and put pressure on the peso currency.

Pena Nieto said the Pacific Alliance, which comprises Mexico, Chile, Colombia and Peru, agreed with Mercosur – made up of Brazil, Argentina, Uruguay and Paraguay – to explore new ways of cooperation to boost trade in areas of common interest.

The eight countries pledged to undertake a series of steps, including making goods trade easier, helping small and medium-sized firms do business internationally and boosting the knowledge-based economy, Pena Nieto told the summit.

Trump has slapped billions of dollars worth of duties on Chinese goods and is weighing fresh steps against auto imports.

Still, Jesus Seade, the incoming NAFTA negotiator of Mexico’s next president, Andres Manuel Lopez Obrador, said on Tuesday he believed a new NAFTA deal would be reached in the next few months ahead of the talks in Washington.

Markets had largely expected Andrés Manuel López Obrador to emerge victorious in Mexico’s presidential election on July 1, but only now are the longer-term implications of the new political mandate beginning to take shape as he awaits inauguration on December 1.

Dr. Michael Hasenstab, CIO of Templeton Global Macro, offers his analysis of what may lie ahead for Mexico and explains why he thinks the new president should be wary of repeating the populist agenda of other Latin American leaders in recent history.

Andrés Manuel López Obrador’s (AMLO) populist ousting of the PRI (Institutional Revolutionary Party) government creates some political uncertainties. However, we believe AMLO’s team has done a sufficient job of reassuring investors that it will transition the government in an orderly manner, “to maintain economic and financial stability.” That’s a good start from the incoming government, in our view.

Financial Discipline vs Populist Impulses

History offers us a number of examples of populists in Latin America that abandoned market-friendly policies to the detriment of their countries, notably including Dilma Rousseff in Brazil, or the Kirchners in Argentina.

While AMLO has shown some populist impulses, such as expanding pension benefits or broadly handing out scholarships, his team appears aware of the pitfalls that often await governments that disrupt confidence in their country’s financial markets.

Over the last few weeks, AMLO’s team has vowed to uphold fiscal discipline and maintain the independence of the central bank. AMLO has also indicated he would not reverse a number of critical reforms carried out by his predecessor, such as the privatization of the energy sector.

Certainly a lot of actual policy remains to be seen, but the team’s initial attentiveness to capital markets and the business sector is an encouraging sign. Additionally, AMLO did run relatively responsible fiscal policy during his tenure as mayor of Mexico City.

How Well Will AMLO’s Political Alliances Hold?

Nonetheless, there are some concerns for the incoming government. The left-wing Morena party, which AMLO founded in 2014, contains a number of unknown newcomers that lack previous political experience, including activists and celebrities. His governing coalition in Congress, Juntos Haremos Historia, enjoys a majority in the Chamber of Deputies, controlling 62% of the seats, but is composed of politically contrasting allegiances between the Labor Party (PT) and the social conservative PES party.

AMLO’s popularity appears to be the glue binding these disparate political factions together, but it remains to be seen how those alliances will hold together on actual policies, particularly if AMLO’s popularity wanes.

Even the Morena party itself, which now has the highest number of seats in both chambers of Congress, has little experience whipping votes. We believe it will be important for the government to uphold recent reforms and to also pursue new reforms if Mexico wants to expand its economy and continue attracting investment.

A Largely Positive Response From Markets So Far

But despite some of the longer-term political uncertainties following the election, markets have largely reacted positively in recent weeks. Much of that can be attributed to the central bank (Bank of Mexico) continuing to run orthodox policy in the background of the election. Notably it raised its policy rate 25 basis points (bps) on June 21 to 7.75%, while indicating that it intends to further support the peso and keep inflation expectations anchored.

The Mexican peso has responded by strengthening 10% against the US dollar from June 14 to July 15, while markets have priced in another 25 bps rate hike at the August 2 meeting.

On the whole, a number of questions linger for the incoming Morena-led government, but we don’t expect major disruptions to the institutional strength of the country, or its economy.

Investors should recall that the Mexican government has run appropriate fiscal policy for the last two decades, while protecting the independence of its central bank, and maintaining a free-floating exchange rate. We don’t see those institutional constructs being disrupted.

Our Outlook for Mexico Remains Positive

Additionally, Mexico’s economy has remained largely resilient?the country has one of the most open economies in the world, benefiting from free trade agreements with the United States, Canada, Japan, Central America and the European Union. It also significantly benefits from upswings in the US business cycle.

Renegotiations of the North America Free Trade Agreement (NAFTA) remain an ongoing concern, but are not likely to derail the extensive systems of trade between Mexico and the United States, in our view.

Overall, we continue to have a positive outlook for the country. We remain focused on investment opportunities in Mexico’s local-currency market, as the peso remains undervalued while yields in the front-end of the curve remain highly compelling at more than 7.5%.

On July 1, for the first time in over four decades, Mexican voters elected a left-wing president. Before Andrés Manuel López Obrador’s 30-point victory, Mexico had six consecutive administrations that embraced a free-market model while almost every other country in Latin America took a left turn.

The electoral result has been chalked up as a referendum on a presidency that oversaw rampant corruption, worsening cartel violence and a doubling of the national debt. But given the economic indicators, the election of a president who promises to confront inequality was well overdue. After average yearly growth rates of over 3 percent from the 1930s through the 1970s, per capita GDP growth has averaged less than 1 percent since 1980. Fifty-three percent of Mexicans live in poverty, the same proportion as in 1992. Over the same period, the wealth of Mexico’s 16 billionaires has grown more than fivefold.

Given this drain of wealth upward, why did Mexico lag so far behind the rest of Latin America in electing a leader aiming to change the economic model?

To answer that, it’s important to recognize that labor unions and other working-class organizations — typically the backbone of left-wing parties — have remained loyal to the Institutional Revolutionary Party (PRI), long the country’s dominant party. The relationships that López Obrador builds with these groups will have important implications for economic policy, particularly renegotiations of the North American Free Trade Agreement (NAFTA).

How did the Mexican economy get here?

When examining everyone from the industrial giants of the last century to the Koch Brothers today, researchers studying U.S. politics blame the upper-class bias of economic policy on big business’s outsize influence. The wealthy have the resources and connections to lobby effectively for policies that preserve their privileged economic positions. Organizations representing the poor and the working class are typically handicapped in policy battles, trying to mobilize massive numbers of ordinary citizens who are more concerned with making ends meet than with the finer points of tax policy or foreign trade agreements.

For decades, Mexico has been in an amplified version of this same pattern. Groups representing the most precarious, such as urban squatters or the rural poor, campaign for political parties — most commonly the PRI — in exchange for state handouts ranging from concrete floors for housing to farm tools. As my own research shows, these commitments to electoral campaigns squeeze out demands for infrastructure, high-quality public education and health care, or policies to generate remunerative employment.

López Obrador’s resounding victory may tear down the PRI’s electoral machinery. But what will his party, or Morena, build in its place? Will lower-class organizations have a voice in party leadership and economic policy? Or will he rebuild a PRI-style machine under a different party banner, leaving the economic policy decisions to technocrats and business lobbyists?

Where will López Obrador take NAFTA – and the Mexican economy?

We should get some clues to these questions right away. When AMLO takes office on Dec. 1, resuming NAFTA talks with the United States and Canada will be high on his agenda. President Trump announced that negotiations, underway since August 2017, would pause until after the November midterm elections. How López Obrador’s team approaches these negotiations will signal his administration’s economic policy goals.

U.S. citizens may be surprised to hear that NAFTA isn’t criticized only by the Bernie Sanders left and the Trump right; it has a quite mixed reputation south of the border as well. The deal has accelerated the Mexican economy’s concentration at the extremes, with clearly defined winners and losers.

Some Mexican groups have indeed profited from NAFTA. Domestic firms with the capacity to export or to provide services to foreign investors saw new markets open up. Wages have increased in the country’s northern states, where foreign-owned factories are concentrated. And middle-class consumers — who, courtesy of NAFTA, today can shop at Walmart and the Gap and dine at Applebee’s and Outback Steakhouse — are generally fond of the deal.

The losers are concentrated in the poorer and more rural south. Highly subsidized U.S.-grown corn has poured into the Mexican market, reducing the price of Mexico’s most widely produced crop by an estimated 66 percent – helping consumers but hurting farmers. Most farmers don’t have the access to credit, skills and infrastructure that they’d need to shift to higher-value export crops. A lack of opportunity in the countryside has driven thousands of impoverished young men and women from the Mexican countryside to try to migrate to the United States or to join drug cartels.

Outgoing President Enrique Peña Nieto has seemed content with the NAFTA status quo. While the average maquila (factory) worker earns less than $20 a day, the Mexican negotiating delegation has been fighting against a joint proposal by U.S. and Mexican labor groups to increase the factories’ minimum wages. And as Trump has instigated a trade war, the Mexican administration has punished U.S. corn exporters by importing corn from Argentina and Brazil rather than bolstering domestic production.

López Obrador has already offered two important clues about his approach to NAFTA. On the one hand, he has praised Peña Nieto’s negotiating team and promised to work with them during the transition. It is unclear whether such statements signal a genuine preference to stay the course or are geared to soothe investors’ concerns for the time being before he pivots once in office.

In his acceptance speech, the president-elect pledged to create a Mexico where “all Mexicans can work and be happy where they were born … and that whoever wants to emigrate does so of their own will and not out of necessity.” That would require a clear change of direction.

If López Obrador plans to follow through on this promise, we should see representatives of organized labor, small business and peasant associations at the NAFTA bargaining table. Provisions for foreign investment would be geared to not only factories that employ low-paying manual labor — jobs that are increasingly under threat by automation — but also technology and service-sector firms that promise to train and employ high-skilled workers. And negotiators would pursue agricultural terms that favor Mexican exports of high-value crops such as avocados, coffee and tomatoes. These trade provisions would be accompanied by domestic policies that enable small businesses and small-scale farmers to obtain the financing they need to reach more lucrative markets.

The victory of leftist candidate Andrés Manuel López Obrador in Mexico’s presidential election shows populism can come in a variety of forms. Franklin Templeton Emerging Markets Equity’s Gustavo Stenzel and Santiago Petri offer their thoughts on what’s next for Mexico and its new president.

The left-wing coalition headed by Andrés Manuel López Obrador (known as AMLO) won by a landslide in Mexico’s general election on July 1, marking a dramatic change in the country’s political direction. He and his party overturned the (former) hegemonic Institutional Revolutionary Party (PRI), which presided over Mexico as a single party for more than 75 years.

Of the nine governorships at stake, the leftist coalition obtained five (Chiapas, Tabasco, Veracruz, Morelos and Mexico City).

During the campaign, AMLO vowed to transform many aspects of Mexican society, pledging to battle corruption and improve social welfare. While the people cheered AMLO’s stance on corruption – one of the main reasons the traditional ruling parties fared poorly in the election – the markets reacted cautiously to the results, with some investors fearing a less business-friendly administration.

In the first communication to the investment community, Carlos Urzua, who looks to become Mexico’s new finance minister, aimed to bring calm to the markets.

Economic Policy

Urzua conveyed that the principles of AMLO’s administration would be responsible macroeconomics, fiscal and debt management, an independent central bank and free-floating of its currency. He also pledged to maintain democratic communication with all political parties represented in Congress and said transparency would be a distinctive feature of the new government.

We are not really surprised by the new administration’s attempts to calm the market’s anxiety towards what is the first full-fledged left-wing experiment in Mexico. However, at this time, we think it’s too soon to take a view on the approach the new government will take.

The new administration expects to generate 2% of gross domestic product (GDP) in savings through a policy that includes centralization of procurement. AMLO implemented a similar policy in Mexico City when he was mayor there.

Procurement represents government- and state-owned enterprise purchases of goods, services and works, and reform in this area could bring reductions in both costs and corruption.

Another possible cost-cutting measure touted by the incoming administration is concentrating all social programs into a single large program, instead of having disseminated small social programs.

One significant component of AMLO’s policies is transparency, and he expects to obtain fiscal savings from success at stamping out corruption.

Social Policies

Meanwhile, AMLO stated his three main social policies will be: a) doubling pension for the elderly; b) a scholarship program for the youth; and c) medicine and food packages for the poor.

While the future is still uncertain, AMLO seems likely to shake up the status quo. He has obtained a strong mandate to change things and seems committed to delivering on his promises.

While his platform is seen as populist, AMLO’s most recent pronouncements have seemed to be more open to free trade. So, overall, the markets may not have much to fear from the “populist” label when it comes to Mexico. We don’t expect a radical change in terms of Mexico’s fiscal position or central bank policy as a result of AMLO’s win.

Potential Election Impact on Energy Reform

Since the nationalization of hydrocarbon resources in 1938, the fate of the energy industry and the health of public sector finances have been closely interlinked. Pemex, the national oil company, transferred royalties and taxes to the federal government, which represented up to one third of the fiscal revenues by 2014. The government’s burden on the national oil company resulted in declining production. Pemex had to pay between 50% to 60% of its revenues in royalties and duties, compromising its cash generation, which resulted in increasing leverage to finance its required capital expenditures plan.

In order to rescue Mexico’s government and the oil and gas industry from its financial constraints, comprehensive energy reform was approved at the end of 2013, granting private investors access to the Mexican energy sector. The reform allowed for new contracting agreements, including profit-sharing, production-sharing and licenses that widened alternatives to previous restrictive service-only contracts. The reform enabled more independence for Pemex for strategic investments and capital expenditure plans.

AMLO’s victory brings plans to revise and possibly delay new offerings for oil and gas exploration acreage, combined with plans to expand refining capacity and develop domestic gas supplies. Some of these proposals could be justified by the fact that the United States threatens to compromise trade links with its partners in NAFTA, which could negatively impact the reliability of US energy supplies.

However, the president-elect should realize that his attempts to re-channel resources back to the national oil company would likely weaken his plans to repair income and social policies aimed at restoring income distribution.

The energy reform of 2013 has kick-started US$200 billion in new foreign investment in Mexico for new production. In the downstream, 30 new private operators are aiming to open more than 1,700 gas stations, enabling the development of a competitive retail market. The reforms have been embedded in the Mexican Constitution and supported by implementation laws passed by Congress.

In our view, AMLO should realize energy reform is an asset to the country and key to unleashing productive forces that will enable Mexico to restore production levels.

Mexican Economic Outlook

The latest economic indicators have, overall, reflected solid momentum for the Mexican economy. In June, the Consumer Confidence Index reached its highest level in six months, climbing to 88.0. It was the eleventh consecutive annual increase. High consumer confidence, combined with a gradual disinflation process, a healthy labor market and credit availability, should help support good levels of private consumption this year. The positive state of the economy signals to us that the outcome of the election was not influenced by the economic cycle – which has been benign – but rather with demands placed on the control of crime and corruption.

If the new administration can deliver on its promises, while simultaneously preserving solid economic fundamentals, we are optimistic we could see healthy GDP growth in Mexico this year and in 2019.

MEXICO CITY 

The man proposed to be Mexico’s next foreign minister said Monday that the United States government under President Donald Trump has treated Mexico badly.

Marcelo Ebrard said one of his goals will be to look for areas of common understanding with the U.S. government.

“Taking harder positions is always going to be easier,” Ebrard said on Radio Formula. “The treatment that we have received by the United States has been terrible. Mexico and Mexicans have received very bad treatment.”

Ebrard did not offer examples of the bad treatment, but Trump has railed against Mexico since the start of his campaign, when he accused the neighbor of sending rapists and drug traffickers. He has repeatedly promised that Mexico will pay for a border wall between the two countries and threatened to walk away from the North American Free Trade Agreement if the U.S. doesn’t get a better deal.

Ebrard said President-elect Andres Manuel Lopez Obrador’s landslide victory July 1 will help in talks with the U.S. because it shows he has a mandate for change.

Lopez Obrador has said he’ll name Ebrard foreign minister after his Dec. 1 inauguration.

Ebrard and Lopez Obrador are scheduled to meet U.S. Secretary of State Michael Pompeo Friday in Mexico City.

Ebrard said Pompeo’s meeting was “courtesy” and a first opportunity to discuss the binational agenda.

He said he would coordinate with the current administration of President Enrique Pena Nieto to avoid undercutting positions that Mexico has taken in the renegotiation of the North American Free Trade Agreement.

But he added: “We have to look for how to better defend Mexico’s interests.”

Lopez Obrador at an event later Monday with business leaders repeated a pledge to build a new oil refinery “so that we can stop buying gasoline abroad.”

Most of that gasoline is purchased from the U.S. as Mexico’s production and refinery capacity have flagged in recent years.

^{It won’t grow faster without addressing weaknesses in education and productivity.}

With the election of Andrés Manuel López Obrador as president of Mexico, the perennial question resurfaces: Might Mexico see a higher rate of growth? Its economy has grown at a rate of about 2 percent per year for about a quarter century, about half the pace of other emerging nations.

The sad reality is that the new Mexican regime probably cannot improve its economic performance unless it can address basic problems with education and productivity.

Mexican economic policy gets many things wrong, and the country has a high level of corruption. But these are not the main hindrances to greater growth. China, which may be at least as corrupt, has grown in the 8 to 10 percent range for a few decades and more recently has exceeded 6 percent; India, which arguably has worse and more arbitrary restrictions on economic activity, has seen some years of 6 to 8 percent growth.

Nor can the scourge of drug violence fully explain Mexico’s anemic economy. Mexico’s south sees much less fallout from that violence, which has pushed the murder rate to more than 2,000 per month, yet it is one of the poorest regions of the country. It is the north, sometimes directly in the line of fire, which has grown most rapidly and attracted the most industry.

Instead, it is education that is arguably Mexico’s most fundamental problem. In most emerging economies, if you are ambitious and seek higher wages, you will invest in more education. Mexicans have traditionally had another choice — crossing the border to work in the U.S. Mexicans who make this choice can move from earning a dollar or two a day to 10 or 15 dollars an hour, though with higher living costs. It is hard to beat that boost simply by finishing high school or even college in Mexico.

So a lot of Mexico’s most ambitious lower-income people have an incentive to stop their education rather than invest in it. That in turn has harmed educational culture, and furthermore the incoming government has promised to reverse some positive educational reforms already underway. It is unlikely that Mexico will soon become more like South Korea, for instance, with its obsession with private tutors and higher education. Near the peak of Mexican migration last decade, about 15 percent of the Mexican labor force was working in the U.S.

You might wonder whether it is economically advantageous for Mexico to send its migrants to the U.S. It probably is still a net benefit, since they can save money and also send remittances back home. Mexico is in fact one of the wealthiest of the “middle income” countries, with a per capita annual income of about $18,100 (adjusting for differences in purchasing power), above that of Brazil (about $15,500), and still slightly higher than China (about $16,800).

Mexico’s second fundamental problem is productivity at the relevant margin. A lot of Mexican companies and plants have remarkably high productivity levels, including in cement, food products, television programs and automobiles. They compete successfully with companies from the U.S. Their success contributes to Mexico’s relatively high per capita income, but it is hard to boost productivity in those companies very much because they are already on the frontier, unlike their peers in, say, India.

The more typical Mexican enterprise is smaller. These companies have fairly low levels of productivity and many do not wish to grow much larger, to avoid both regulatory and tax burdens. Admittedly, this labor can be and often is absorbed into the more formal, more productive sectors of the economy, including exports. But the rate of absorption is quite slow, which in turn helps to set the slow growth rate of the economy. And in any case neither the high-productivity nor the low-productivity firms have that much room to grow within their respective categories, a major difference from many other emerging economies.

It seems incongruous to call Mexico “the Denmark of Latin America,” a label once applied to Uruguay. But that may be Mexico’s future. Denmark is among Europe’s most prosperous countries, yet since the late 19th century it has averaged only about 1.9 percent growth with no huge positive spurts. The Danish advantage has been to avoid a lot of backsliding and to reap the gains of ongoing compound returns. Mexico tends to have recessions that mirror its neighbor to the north, but the overall growth rate is much steadier than it was in the 1980s.

Fifty or 100 years from now, Mexico may be a huge surprise, economically speaking — without ever having been seen as a miracle. In the meantime, the Mexican discontent is likely to continue.

Texas business leaders are hopeful about future of U.S. trade relations with Mexico following the Mexican presidential election.
Mark Jones, political science professor at Rice University and chair of the school’s Latin American Studies program, predicts Andrés Manuel López Obrador, or AMLO, will be a very different president than his predecessor, Enrique Peña Nieto.

“Enrique Peña Nieto — his general goal was to not make waves with President Trump in the United States so that investment would continue. AMLO is a leftist and a populist and is likely to be far more combative with Trump,” Jones said.

And that concerns some Texas businesses who worry about the re-negotiation of the North American Free Trade Agreement, or NAFTA.
But Jeff Mosley, president and CEO of the Texas Association of Business, is optimistic about the future relationship between the Trump and theLópez Obrador administrations.
“Well, it could very well be that because both President Trump and President-elect [Lopez] Obrador draw from a populist vote base that they’ll have some very common interests and be more able to sit down and agree on the fundamentals of a NAFTA 2.0,” Mosley said.

But trade experts do not expect that to happen until well after López Obrador is sworn into office this December.

MEXICO CITY (AP) — Furious at spiraling corruption and violence, Mexican voters unleashed a political earthquake Sunday by electing a leftist firebrand as president and giving him a broad mandate to overthrow the political establishment and govern for the poor.

A late-night official quick count from electoral authorities forecast that Andres Manuel Lopez Obrador would win with between 53 percent and 53.8 percent of the vote, a remarkable margin not seen in the country for many years. A prominent exit poll predicted that his party allies were poised to score huge wins in the Senate and lower house, possibly absolute majorities in both.

Lopez Obrador, who campaigned on vows to transform Mexico and oust the “mafia of power” ruling the country, rode widespread voter anger and discontent with the governing Institutional Revolution Party, or PRI, of President Enrique Pena Nieto and had led opinion polls since the beginning of the campaign.

The PRI, which dominated Mexican politics for nearly the entire 20th century and recaptured the presidency in 2012, was set to suffer heavy losses not just for the presidency but in down-ballot races as well.