Mexico, the United States, Corn, and Energy
Genevieve Signoret & Delia Paredes
(Hay una versión en español de este artículo aquí.)
We continue to share excerpts from our September 11 report, Quarterly Outlook 2023–2025: Soft Landing Yet Again, where we present three scenarios for the global economy over the next two years. You can think of our scenarios as train tracks: each takes the economy in a different direction. A scenario is built on a group of assumptions. Our three sets of assumptions “pivot” the economy from one track to another.
Mexico’s trade disputes with the United States over corn and energy pose threats to inflation and growth in Mexico.
The United States objects to Mexican Economy Ministry rules prohibiting the use of biotech corn for human consumption and to the instructions it has issued to other Mexican public agencies to gradually phase out its use for animal feed.
On August 17, the United States Trade Representative (USTR) took the step of formally establishing a dispute settlement panel.
Officially, this regards Mexican imports of all corn but in fact is relevant solely to yellow corn. Mexicans consume, directly, chiefly white corn, which Mexico doesn’t need to import. But for animal feed Mexico does import tons of yellow corn.
Should a panel rule against Mexico, and should Mexico not respond by immediately revising its policy, the United States would likely slap tariffs on Mexico. And this would rev up inflation.
The United States (together with Canada and a slew of other countries) objects, additionally, to Mexico’s energy policy. In the words of the USTR, they “undermine American companies and U.S.-produced energy in favor of Mexico’s state-owned electrical utility, the Comisión Federal de Electricidad (CFE), and state-owned oil and gas company, Petróleos Mexicanos (PEMEX)”, thereby largely cutting off foreign investment in Mexico’s clean energy infrastructure.
American Ambassador Ken Salazar estimates that US$ 30 billion in U.S. energy-related investments in Mexico are at risk, although he concedes that this amount does include investments made in the past.
Settlement talks over this dispute are ongoing.
Note that both disagreements are tangled up with immigration issues. Biden wants AMLO to help slow down immigration. AMLO wants Biden to grant work visas to more Mexicans. And both countries have elections next year.
In envisioning our Soft Landing scenario, we assume that these issues are so politically fraught that both countries will find ways to put them on the back burner until after both countries have held their elections (2025).
But we assume further that, meanwhile, as clouds of doubt, they will continue to limit how much foreign and domestic investment Mexico will enjoy—friend-shoring excitement notwithstanding.
Moreover, that things do come to a head in 2025.
These assumptions in our central-scenario forecast drive three outcomes: Mexican inflation rates continue their descent, Banxico tightens its policy stance no further, and a recession hits Mexico in the first quarter of 2025.