Mexico Economy Will Slow If US Quits NAFTA

US withdrawal from the North American Free Trade Agreement would lead to even slower growth for Mexico’s economy, credit rating agency Fitch said late Monday.

“If the US withdrew from NAFTA, the Mexican economy would face significant uncertainty, which would likely lead to an immediate confidence shock and short-term market volatility,” the agency said in presenting a report titled “How NAFTA Abrogation Would Affect Mexico”, Xinhua reported.

“Growth would slow through the medium term, from an already modest base, “with a negative impact on productivity” affecting potential growth rates through the medium and long term,” said the agency.

The forecast comes after a fourth round of talks aimed at modernizing the two-decade trade deal ended with “growing uncertainty” as to whether the three NAFTA members, Mexico, the US and Canada, will successfully renegotiate the accord.

One of the more immediate effects of ending NAFTA would be the application of higher tariffs on Mexican exports, especially autos and manufactured goods, the report noted.

The peso, which has already taken a hit from the uncertainty surrounding the renegotiation, is “highly likely” to depreciate further, the agency said, though it predicted that would “also enhance competitiveness of export-oriented industries” in Mexico.

The fifth round of NAFTA renegotiation talks is to take place from Nov. 17 to 21 in Mexico City.

Growing uncertainty over the future of NAFTA means companies need to brace themselves, including for the possibility that President Donald Trump walks away from a deal, a trade lawyer is warning the Canadian business community, CBC reported.

“The first step is for companies to understand this is very real and that they need to start contingency planning,” said Dan Ujczo, an international trade lawyer specializing in Canada-US matters.

On the campaign trail last year, Trump vowed to rip up NAFTA—the 23-year-old trade agreement between the US, Canada and Mexico—if he could not renegotiate a better deal. His recent reiterations of that threat, along with demands that Canada and Mexico consider impossible, have forced everyone to take it more seriously.

It remains to be seen whether Trump will in fact attempt to withdraw, how US Congress would react, whether Mexico and Canada would still keep talking and what that would end up meaning, in real terms, for cross-border trade between the three countries.