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U.S. Tax Reform, NAFTA Uncertainty Two Major Concerns for Mexican Economy

LADB Article ID: 80485
Category/Department: Mexico
Date: 2018-01-10
By: Carlos Navarro

Mexico is deeply concerned about the impact of two economic changes promoted by US President Donald Trump’s administration: the tax reform approved by the US Congress at the end of 2017, and the possibility that the US will follow through with its threat to withdraw from the North American Free Trade Agreement (NAFTA). A major worry is that the sharp reduction of corporate tax rates offered by the new law, which amounts to US$1.5 trillion over 10 years, could encourage US companies to invest in the US rather than in Mexico. A possible response by the Mexican government would be to enact its own tax reforms to discourage capital flight. However, Mexico has very little room to maneuver in this area, according to Alicia Bárcena, executive secretary of the Economic Commission for Latin America and the Caribbean (ECLAC). A bigger uncertainty for the Mexican economy is the US threat that it might withdraw from NAFTA. US, Mexican, and Canadian negotiators have remained far apart during several rounds of negotiations, launched in August, to modify the trilateral agreement that went into effect in 1994. The unwillingness of Mexico and Canada to make major concessions to the US has created great frustrations for the Trump government. In an interview with Reuters, a US source close to the White House quoted Trump as saying “I want out” as the talks drag on with little sign of progress.

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