Claudia Sheinbaum faces economic challenges – DW – 01/10/2024

As Mexico’s first female president, Claudia Sheinbaum, begins her term on October 1, dark clouds loom over the Central American country’s northern horizon. The Republican candidate for the presidency of the United States, Donald Trump, has once again cast doubt on the Mexican economic model of low-cost production for the American market by calling on companies in this country to immediately relocate their activities to the States -United under penalty of facing higher customs duties.

Speaking to party members at the Republican National Convention in July, he warned Chinese electric vehicle makers in Mexico that their electric vehicles would become unaffordable due to new 100% duties he planned to impose on their imports.

Trump also called on German automakers, which operate large factories in Mexico, to “become American automakers.”

“I want them to build their factories here,” Trump said during a campaign speech in Savannah, Georgia, on September 24, promising to cut the corporate tax rate to 15 percent.

Mexico’s Robust Growth Faces Political Challenges

Although she was sworn in on Tuesday, 62-year-old Claudia Sheinbaum’s presidential platform will not become clear until after November 5, when a new US president is elected. Whether it is Donald Trump or the Democratic Party’s Kamala Harris, the outcome of the US elections will certainly have a major impact on the Mexican economy.

Left-wing politician Sheinbaum inherits a robust economy from her predecessor, mentor and party ally Andres Manuel Lopez Obrador. Mexico’s gross domestic product (GDP) grew 3.2% last year, marking the second consecutive year of growth above 3%. Official data also shows that the poverty rate fell from 43.9% in 2020 to 36.3% in 2022, with around 8.8 million fewer Mexicans living in poverty.

However, in recent weeks, judicial reform has sparked national and international controversy. Developed at record speed in institutions, it has raised concerns among trading partners in the United States and Canada. The reform calls for all federal judges to be elected directly by the public, which critics say could increase the influence of organized crime, which has considerable influence in Mexico, on the justice system.

American companies have already frozen investment projects estimated at $35 billion (31.6 billion euros), and Ken Salazar, the American ambassador to Mexico, has expressed his concerns. on the potential negative impact on Mexican democracy and bilateral trade of $807 billion. Nevertheless, Lopez Obrador pushed through the reform, which he called “democratization of the judicial system,” in the home stretch of his presidency.

Investors plead for the rule of law

Human rights organizations and the Catholic Church have also warned that Mexico’s elections could be infiltrated by organized crime, noting that the high number of political assassinations during recent election campaigns was an indicator. . The concern is that this type of political violence could also disrupt judicial elections.

Hartmut Rank, head of the Latin America rule of law program at Germany’s Konrad Adenauer Foundation in Bogota, Colombia, thinks the reform could have a negative impact on the economy. “For the economy, the rule of law is a crucial criterion for doing business abroad, building and operating facilities. And independent judges are a fundamental condition for the rule of law,” he said. he told DW. “If the reform is implemented as planned, Mexican courts will be less independent, which could prompt companies to look for other locations.”

After Sheinbaum’s landslide victory in the June election, the Mexican currency lost 13 percent of its value against the U.S. dollar, reflecting financial investors’ skepticism about Mexico’s economic development under the new president.

Despite international concerns, Mexico’s new government remains optimistic about the economy. According to the Mexican financial newspaper El Economista, the Sheinbaum administration expects an increase in foreign direct investment (FDI) of “three to four billion dollars per year.” By the end of his six-year term in 2030, this would represent an influx of up to $24 billion in foreign investment.

German automakers face uncertainties

German companies, which have a strong presence in Mexico, are also very attentive to political and economic developments at the time Sheinbaum takes office.

Johannes Hauser, president of the German-Mexican Chamber of Commerce and Industry (AHK Mexico), says businesses are in a “wait and see” attitude regarding how judicial reform will be implemented. “Our member companies are currently analyzing the different scenarios. It is clear that judicial reform could limit the independence of the courts,” Hauser told DW.

For German car manufacturers, Mexico is the most important production site on the American continent, after the United States and ahead of Brazil and Argentina. According to a spokesperson for the German Automobile Industry Association (VDA), Sheinbaum’s legal reform is probably less important for German car manufacturers than Donald Trump’s threat to increase customs duties.

“The United States, Mexico, and Canada have signed the USMCA free trade agreement. Imposing higher U.S. tariffs on vehicles from Mexico would violate that agreement. It would particularly harm U.S. businesses because it “They benefit the most from the North American production network,” the VDA spokesperson told DW.

This article was originally written in German.