The Mexican government is pushing to rapidly modernize its free trade agreement with the EU and has declared its "close affinity" to Germany, following US President Trump's threats of massive reprisals by building a wall at the border and imposing punitive tariffs. Because of its extreme dependence on the USA, Mexico can only hold its ground by intensifying its relations with other countries, according to Mexican Foreign Minister Luis Videgaray. Mexico's enticements are greeted with sympathy by German business circles. The majority of German firms active in Mexico had already decided on new investments and is planning to carry these out, despite expected disadvantages from the projected US trade policy. Experts assume that the US administration cannot afford excessive punitive tariffs or other exorbitant escalations. At an appearance last week in Mexico, Siemens CEO Joe Kaeser ostentatiously announced investments worth US $200 million and signed an agreement of intent with Mexico's Minster of Economics for infrastructure and industrial projects with a possible volume of up to US $36 billion.

Existential Threat

If implemented, US President Donald Trump's chauvinist provocations against Mexico could become an existential threat to that country. Preceding US administrations had already sealed off the borders between the two countries with highly militarized border fortifications - comparable to the razor wire barrier around the EU exclaves Ceuta and Melilla. In spite of this fact, constructing a wall along the full length of the border and demanding Mexico to pay the costs, shows nothing but contempt for the neighboring country. The chicanery that will most likely accompany the construction of a wall, will affect "the busiest border worldwide," with 50 million pedestrians, as well as 74 million cars and 5 million trucks crossing annually, notes the German Institute for International and Security Affairs (SWP).[1] This would provoke immense social damage, compounded by an unpredictable extent of economic devastation, should the US government impose punitive tariffs on imports from its southern neighbor. With its participation in the North American Free Trade Agreement, NAFTA, Mexico was forced into a nearly complete dependence upon the United States. Over 80 percent of its exports are to the United States. This is all the more serious because exports make up one third of its GDP, which is unusually high for countries in Latin America. The expected dramatic slump in exports, resulting from the new tariffs would have catastrophic consequences. The automobile sector alone - which would be particularly threatened - accounts for more than one-third of Mexico's total exports.

"Close Affinity"

The Mexican government is reacting to this threat with a dual strategy. On the one hand, in preparation for a possible reformulation of NAFTA, Mexico began to systematically assess its economic interests and announced that it will be ready for negotiations in June. Minister of Foreign Affairs, Luis Videgaray, and Minister of the Economy, Ildefonso Guajardo, arrived yesterday in Canada to explore a common strategy in the power struggle with Washington.[2] On the other hand, the government in Mexico City has begun to explore alternatives. According to Foreign Minister Videgaray, the government has already opened "formal talks" to initiate "trade agreements with Brazil and Argentina," while striving to modernize the free trade agreement with the EU "already this year."[3] Videgaray leaves no doubt that Berlin would play an exclusive role. "Germany has always been a strategic partner for Mexico," he declared. "Germany and Mexico currently have a close affinity in our policies confronting protectionist threats. ... Without a doubt, this will draw us closer together." Following his first talks with his German counterpart Sigmar Gabriel, Videgaray said, "this is a relationship of trust, which we want to reinforce."[4]

On the Verge of New Investments

Mexico's enticements are being quite positively received in German business circles. According to a poll taken by the German Foreign Chambers of Commerce (AHK), 83 percent of the 1,900 German enterprises active in Mexico, part from the premise that the new US administration's trade policies will backfire.[5] However, a clear majority does not expect losses, which, in principle, would threaten their activities in Mexico. Germany's Trade and Invest (gtai) foreign trade agency assumes that Trump can not allow the situation to escalate excessively. NAFTA forbids customs tariffs, which the free trade-oriented Congress would, in any case, be called upon to pass. Even if the USA should withdraw from NAFTA, it would still be bound by the rules of the World Trade Organization (WTO), which limit import tariffs on automobiles to a maximum of 2.5 percent. Import tariffs would furthermore seriously affect many powerful US companies, and Mexico's countermeasures would mainly affect the rural areas of the USA, "with a particularly large share of Trump's supporters."[6] The AHK reports that German enterprises in Mexico are hopeful that there will be no earth-shattering changes. According to the report, even 62 percent of the German enterprises in the country plan new investments this year; 43 percent seek to maintain their current staff, while 46 percent intend to increase it.[7]

"Very Grateful"

Recently, Siemens ostentatiously announced an expansion of its business in Mexico. The company is in an advantageous position. On the one hand, with more than 60 factories in the United States, with over 50,000 employees, it has a strong stand. On the other, its production in Mexico is hardly for the US market, and therefore would suffer much less than other enterprises from punitive tariffs.[8] At the same time, as its CEO for Mexico, Louise Goeser, declared, the company sees Mexico as "one of the most interesting markets ever." In 2015 and 2016, Siemens-Mexico - with around 6,200 employees in nine factories, two logistical and three research centers - was able to achieve a 41 and 32 percent growth in business, respectively, to approximately €1.5 billion.[9] Last week, at a very prominent appearance in Mexico, Siemens Director Joe Kaeser and the country's Minister of the Economy, Guajardo signed a declaration of intent, stipulating that both sides want to engage in major projects for the development of Mexico's infrastructure and its core industries - with a volume of up to US $36 billion in the course of the next ten years. It remains unclear how large Siemens' share will be, even though, as a preliminary step, Siemens Group CEO Kaeser has announced US $200 million in concrete investments in the course of the next ten years. A thousand jobs will be created. Economics Minister Guajardo was quoted, "we are very grateful for this visit at this time."[10]

Year of Germany

Kaeser's appearance in Mexico made a particular splash in the aftermath of Washington's change of government. However, the step had been planned much earlier. The German government has also been making efforts to support the German companies' upsurge in Mexico, long before the US elections. One example is the "Year of Germany in Mexico," an element of German cultural PR, inaugurated June 6, 2016, by Germany's Foreign Minister at the time, Frank-Walter Steinmeier. As the foreign ministry explains, Germany was showcased to the Mexican public, in more than 120 projects, with around 1,000 events, "in all its aspects" to intensify bilateral contacts at all levels.[11] Of course, at the time of the inauguration of the "Year of Germany in Mexico," it could not have been anticipated that a future US president would drive Mexico into the arms of other countries, with his rude threats, and unintentionally promote the rapid expansion of German-Mexican relations.

[1] Günther Maihold: Mexiko - Trumps erster außenpolitischer Schadensfall im Amt. www.swp-berlin.org 27.01.2017.
[2] Videgaray y Guajardo se reunirán con empresarios en Canadá. www.eluniversal.com.mx 20.02.2017.
[3], [4] "Trump-Effekt": Mexiko setzt auf Europa. www.merkur.de 19.02.2017.
[5] Investitionen in Mexiko: Seit 2000 kamen 800 deutsche Firmen. mexiko.ahk.de.
[6] Trump und Mexiko - die wichtigsten Fakten zum Handelsstreit. www.gtai.de 03.02.2017.
[7] Investitionen in Mexiko: Seit 2000 kamen 800 deutsche Firmen. mexiko.ahk.de.
[8] Axel Höpner: Kaeser bekennt sich zu Mexiko. www.handelsblatt.com 14.02.2017.
[9] "Mexiko kann auf Siemens zählen". www.manager-magazin.de 16.02.2017.
[10] Axel Höpner: Kaeser bekennt sich zu Mexiko. www.handelsblatt.com 14.02.2017.
[11] Deutschlandjahr in Mexiko: Allianz für die Zukunft. www.auswaertiges-amt.de 07.06.2017.