Some things never change: a difficult year ahead A Presentation to - PowerPoint PPT Presentation

Some things never change: a difficult year ahead … A Presentation to the OTAY MESA CHAMBER OF COMMERCE By Dr. Deborah L. Riner December 8, 2017

Hate to be pessimistic but … Dr. Deborah Riner www.deborahriner.com Source of image: http://www.hec.edu/var/corporate/storage/images/knowledge/finance-et-comptabilite/finance-d entreprise/quand-les-dirigeants-surestiment-les-risques-apres-une-catastrophe/767280-2-eng-GB/Stormy-weather-Overestimating-risk-in-the-wake-of- disaster_reference.jpg

Uncertainty Volatility • Presidential election • NAFTA negotiations • US tax code Dr. Deborah Riner www.deborahriner.com Source of image: http://peakpointcap.com/wp-content/uploads/2015/09/Uncertainty.jpg

Mexico’s prospects • Growth – Better? • Inflation – Coming down but still high • Interest rates – New central bank head; also in the US • Exchange rate – Weaker in the first half of the year Dr. Deborah Riner www.deborahriner.com

Post NAFTA, growth rates have synchronized … 8 1982 - 2017 7 6 5 4 3 Growth Rate (Percent) 2 1 0 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 -1 -2 -3 -4 -5 -6 US Mexico Dr. Deborah Riner www.deborahriner.com

Following NAFTA, Mexico’s inflation rate plunged 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Mexico US

There’s still a challenge … 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mexico US Dr. Deborah Riner www.deborahriner.com

PerCent Interest rates have followed inflation 100.00 120.00 140.00 160.00 180.00 20.00 40.00 60.00 80.00 0.00 Feb 1985 Feb 1986 Feb 1987 Feb 1988 Feb 1989 Feb 1990 Feb 1991 Average Monthly 28 Day Cete Rate Feb 1992 Feb 1993 Feb 1994 Feb 1995 lower … Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Feb 2006 Feb 2007 Feb 2008 Feb 2010 www.deborahriner.com Feb 2011 Dr. Deborah Riner Feb 2012 Feb 2013 Feb 2014 Feb 2015 Feb 2016 Feb 2017

PerCent the direction set by the Fed Funds rate 10.00 12.00 14.00 16.00 18.00 20.00 And are likely to continue following 0.00 2.00 4.00 6.00 8.00 Ene 2001 Ene 2001 Ene 2002 Ene 2002 Ene 2003 Ene 2003 Ene 2004 Average Monthly 28 Day Cete Rate Ene 2005 Ene 2005 Ene 2006 Ene 2006 Ene 2007 Ene 2008 Ene 2008 Ene 2009 Ene 2009 Ene 2010 Ene 2010 Ene 2011 Ene 2012 Ene 2012 Ene 2013 Ene 2013 www.deborahriner.com Ene 2014 Dr. Deborah Riner Ene 2015 Ene 2015 Ene 2016 Ene 2016 Ene 2017

Exchange Rate 22.5 Evolution of the Peso: January 2007 - November 2017 21.5 20.5 19.5 18.5 Fix Rate (MXP / US$) 17.5 16.5 15.5 14.5 13.5 12.5 11.5 10.5 9.5 minimum price in month maximum price in month average exchange rate in month Dr. Deborah Riner www.deborahriner.com

Even US and Mexican stock prices are synchronizing … 100% Comparative Performance of Dow Jones and Bolsa Index in US$ 90% 80% 70% 60% Percentage Change 50% 40% 30% 20% 10% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dec 1, 2017 -10% -20% -30% -40% -50% Dow Bolsa (in US$) Dr. Deborah Riner www.deborahriner.com

NAFTA … Dr. Deborah Riner www.deborahriner.com Source of image: https://www.carew.com/barriers-successful-negotiations/

Prepare for the worst – and hope for the best San Diego will feel the pain … Dr. Deborah Riner www.deborahriner.com Source of image: http://www.centexpatriots.com/preparation.html

California would be hardest hit US state in terms of jobs displaced Alabama Alaska Arizona Arkansas California Colorado Connecticut DC Delaware Florida Georgia Hawaii Texas California Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Ohio Nevada New Hampshire Illinois New Jersey New Mexico New York North Carolina North Dakota Ohio Indiana Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Michigan Texas Utah Vermont Virgin Islands Virginia Washington West Virginia Wisconsin Wyoming Dr. Deborah Riner www.deborahriner.com Source of data: Petersen Institute for International Economics

NAFTA: more jobs with than without 1,322 823 403 5,665 Agriculture Mining 35,150 Utilities Construction 83,426 4,504 Mfg (non-auto) Autos Trade 47,793 Transportation Services 7,872 Dr. Deborah Riner www.deborahriner.com

NAFTA jobs … 0.6 Where jobs are created 0.5 0.4 0.3 0.2 0.1 0 Dr. Deborah Riner www.deborahriner.com

Dr. Deborah Riner www.deborahriner.com Source of graph: https://www.brookings.edu/blog/the-avenue/2017/03/30/how-u-s-states-rely-on-the-nafta-supply-chain/

Where negotiations stand … • October’s 4 th round – December deadline abandoned – Now, March • Post 5 th round – More on that later … Dr. Deborah Riner www.deborahriner.com Source of image: https://avatel.files.wordpress.com/2011/08/future3.jpg

Nearing completion … • Telecom • Energy • Digital commerce • Market access • Chemicals • SME access to markets • Sectors: – Pharmaceutical products – Medical devices – Cosmetics – Wine & liquor Dr. Deborah Riner www.deborahriner.com Source of image: http://www.hffinancial.com/wp-content/uploads/2017/04/easy-hard-button-400.jpg

The difficult … • Rules of origin – Autos • Sunset clause • Dispute resolution • Government procurement • Canada’s dairy sector Dr. Deborah Riner Source of image: https://previews.123rf.com/images/andrewgenn/andrewgenn1611/andrewgenn161100070/65888668- www.deborahriner.com Color-business-cartoon-about-difficult-coworker--Stock-Photo.jpg

Rules of Origin • Regional content – 29 chapters in regional tariff schedule require regional content • 60% of cost ( metodo de valor ) or • 50% of net cost Dr. Deborah Riner www.deborahriner.com

Autos are the elephant in the room • US proposal – 85% regional content, up from 62.5% – 50% US content Dr. Deborah Riner www.deborahriner.com Source of image: https://imgur.com/gallery/y8ATc

Sunset clause • There is a precedent – in the WTO agreement – Anti-dumping and countervailing duties – Safeguard measures – Subsidies and Countervailing measures • But, those provisions are designed to limit restricting imports • Willing to review … Dr. Deborah Riner Source of image: https://en.wikipedia.org/wiki/Sunset#/media/File:Sunset_2007-1.jpg www.deborahriner.com

Dispute Settlement • Chapter 19 Dr. Deborah Riner www.deborahriner.com Source of image: https://www.laleggepertutti.it/36726_mediazione-ecco-il-modello-del-documento-informativo-da-far-sottoscrivere-al-cliente

Government Procurement • US wants to limit Dr. Deborah Riner www.deborahriner.com Source of image: https://buffalochronicledotcom.files.wordpress.com/2015/04/shutterstock_102358021-b2g-procurement-550x340.jpg

Tit for Tat • Post-5 th round – Canada: no chance of a deal unless US significantly alters contentious proposals – US: frustrated by lack of counter-proposals – Mexico: progress on many themes but others “unacceptable” • The “cooperation” threat • proposes limiting US firms’ access to government contracts Dr. Deborah Riner www.deborahriner.com Source of image: http://www.spigglelaw.com/employment-blog/can-retaliation-include-a-failure-to-rehire/

Aside from the rhetoric, watch for • Are construction projects to improve transit of goods moving forward? – On schedule or slowing? • Are new projects under consideration? • Immigration vs. trade – Can trade continue to grow with crackdown on immigration? Dr. Deborah Riner www.deborahriner.com Source of image: https://resources.stuff.co.nz/content/dam/images/1/h/m/2/m/w/image.related.StuffLandscape SixteenByNine.620x349.1kknl3.png/1500785246282.jpg

What’s next? • Next round January 23 – 28 in Montreal • Will the Trump Administration have to renew “fast track”? – expires July 31 • Mexican presidential election – Can Peña still get this ratified? Dr. Deborah Riner www.deborahriner.com Source of image: https://imageog.flaticon.com/icons/png/512/36/36601.png?size=1200x630f&pad=10,10,10,10&ext=png&bg=FFFFFFFF

What happens if … ? • US can withdraw • Bilateral treaties = US preference Dr. Deborah Riner www.deborahriner.com Source of image: http://partnersinexcellenceblog.com/wp-content/uploads/2017/09/Whats-next.jpg

MAD (mutual assured destruction) Dr. Deborah Riner www.deborahriner.com Source of image: http://alternatehistoryweeklyupdate.blogspot.com/2015/03/alternate-nuclear-wars.html

A few concluding thoughts on NAFTA … • There are political points and there are economic realities • Is this really about China? • Careful with the Brexit error – dire consequences of a “for” vote haven’t materialized Dr. Deborah Riner www.deborahriner.com

A new president in Mexico Dr. Deborah Riner www.deborahriner.com Source of image: https://www.aei.org/wp-content/uploads/2015/06/shutterstock_230064685.jpg