The Biden Administration escalated a trade grievance as Mexico increasingly nationalizes its energy sector in a move that could impact freight carriers and American consumers.
Media outlets continue to echo Biden Administration talking points that the policies of Mexican Pres. Andrés Manuel López Obrador (AMLO) are “unfair.” But beneath the narrative, AMLO’s policies only make the foreign investment into his country’s energy sector difficult at a time when the U.S. is reliant on OPEC oil and Russia cut natural gas supplies to Europe down to 20 percent.
“Given how strongly Lopez Obrador feels about his protectionist policies in the energy sector, it is unlikely that an agreement will be reached,” Carlos Petersen, a political analyst at Eurasia Group, reportedly said. “This will not jeopardize USMCA as a whole, but will certainly create tensions and potential retaliatory measures from the US and Canada.”
Should the Biden Administration decide to weaponize clauses in the U.S. Mexico Canada Agreement (USMCA), specific products and materials are likely to get hit by tariffs. This will likely change the dynamic of cross-border trade.
U.S.-imposed tariffs could run upwards of $30 billion, and it’s not out of the question Mexico would respond in kind. Consumers have learned through the recent supply chain disruption and historically high truck diesel prices that these costs are passed along. Essentially, a trade spat with Mexico would likely add to 40-year-high inflation.
AMLO rose to office rallying voters to a type of Mexico first agenda, calling the opening of oil drilling to U.S. and other nations the “theft of the century.” He appears to be making good on his promise to centralize control over oil and electricity production. The U.S. southern neighbor also insisted on a “sovereignty clause” over hydrocarbons in the USMCA, giving credence to prioritizing national investment in both oil and electricity.
Part of the trade standoff stems from emissions goals the Biden Administration insists Mexico achieve. Mexico has not rolled back oil production or prioritized sustainable resources as aggressively as the Biden Administration.
“We have repeatedly expressed serious concerns about a series of changes in Mexico’s energy policies and their consistency with Mexico’s commitments. U.S. companies continue to face unfair treatment in Mexico,” U.S. Trade Representative Katherine Tai reportedly stated. “Mexico’s policies have largely cut off U.S. and other investment in the country’s clean energy infrastructure, including significant steps to roll back reforms Mexico previously made to meet its climate goals under the Paris Agreement.”
Gasoline prices rose in the U.S. rose to all-time highs as the exorbitant cost of diesel drove inflation. By contrast, Mexico has maintained relatively stable fuel costs. In July 2021, Mexican gasoline costs were $1.02 per liter and stood at $1.07 in June 2022. Truck diesel hovered around $4.335 per gallon in May 2022, significantly lower than in the U.S. at the time.
Sources:
https://ajot.com/news/amlo-risks-long-us-mexico-trade-spat-by-insisting-on-energy-policy
https://tradingeconomics.com/mexico/gasoline-prices
https://www.aljazeera.com/economy/2022/7/20/us-calls-mexicos-energy-policies-unfair-seeks-talks
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