Mexico’s Claudia Sheinbaum faces financial challenges – DW – 10/01/2024 | EUROtoday

As Mexico’s first feminine president, Claudia Sheinbaum, begins her time period in workplace on October 1, darkish clouds are looming on the northern horizon of the North American nation. US Republican presidential hopeful Donald Trump has once more plunged Mexico’s financial mannequin of low-cost manufacturing for the US market into doubt by calling on corporations there to right away relocate their operations to the United States or face increased tariffs.

Speaking to get together members on the Republican National Convention in July, he warned Chinese electrical car producers in Mexico that their EVs would grow to be unaffordable on account of new duties of 100% he was planning to impose on their imports.

Trump has additionally referred to as on German automakers, which function large vegetation in Mexico, to “become American car companies.”

“I want them to build their plants here,” Trump mentioned throughout a marketing campaign speech in Savannah, Georgia, on September 24, as he promised them a lowered company tax charge of 15%.

Mexico’s strong progress faces political headwinds

Sheinbaum’s presidential agenda will solely grow to be clear after November 5, when a brand new US president is elected. Whether it should be Donald Trump or Kamala Harris from the Democratic Party, the result of the US election is certain to have a serious affect on the Mexican financial system.

Left-wing politician Sheinbaum is inheriting a strong financial system from her predecessor, mentor, and get together ally Andres Manuel Lopez Obrador. Mexico’s gross home product (GDP) grew 3.2% final yr, marking the second consecutive yr of over 3% progress. Official knowledge additionally reveals that the poverty charge fell from 43.9% in 2020 to 36.3% in 2022, with round 8.8 million fewer Mexicans dwelling in poverty.

In latest weeks,nonetheless, a judicial reform has sparked nationwide and worldwide controversy. Rushed by establishments at report pace, it has raised considerations amongst commerce companions within the US and Canada. The reform requires all federal judges to be straight elected by the general public, which critics concern may enhance the affect of organized crime, which holds important sway in Mexico, on the judiciary.

US corporations have already frozen an estimated $35 billion (€31.6 billion) in funding tasks, and Ken Salazar, the US ambassador to Mexico, has voiced his considerations concerning the potential unfavourable affect on Mexico’s democracy and the $807 billion bilateral commerce. Nonetheless, Lopez Obrador pushed by the reform, which he described as a “democratization of the judicial system,” within the last stretch of his presidency.

Investors pushing for rule of legislation

Human rights organizations and the Catholic Church have additionally warned that elections in Mexico could possibly be infiltrated by organized crime, noting that the excessive variety of political murders throughout latest election campaigns was an indicator of this. The concern is that this kind of political violence may mar elections within the judiciary as effectively.

Hartmut Rank, head of the Latin America Rule of Law Program at Germany’s Konrad Adenauer Foundation in Bogota, Colombia, thinks the reform may negatively affect the financial system. “For the economy, the rule of law is a crucial criterion for doing business abroad, building and operating facilities. And independent judges are a fundamental prerequisite for the rule of law,” he instructed DW. “If the reform is implemented as planned, courts in Mexico will be less independent, which could lead businesses to look for alternative locations.”

Following Sheinbaum’s landslide election victory in June, the Mexican forex misplaced 13% of its worth towards the US greenback, reflecting the skepticism of economic buyers in Mexico’s financial growth beneath the brand new president.

Despite worldwide considerations, the brand new Mexican authorities stays optimistic concerning the financial system. According to the Mexican monetary newspaper El Economista,  Sheinbaum’s administration expects a rise in international direct funding (FDI) of “three to four billion dollars per year.” By the top of her six-year time period in 2030, this may quantity to an influx of as much as $24 billion in international investments.

German automakers face uncertainties

German corporations, which have a powerful presence in Mexico, are additionally paying shut consideration to the political and financial growth as Sheinbaum assumes workplace.

Johannes Hauser, the pinnacle of the German-Mexican Chamber of Commerce and Industry (AHK Mexico) says corporations are in a “wait-and-see” mode as to how the judicial reform will probably be applied. “Our member companies are currently analyzing the different scenarios. It’s clear that the judicial reform could limit the independence of the courts,” Hauser instructed DW.

For German automotive producers, Mexico is crucial manufacturing location within the Americas after the US and forward of Brazil and Argentina. According to a spokesperson for the German Association of the Automotive Industry (VDA), Sheinbaum’s judiciary reform might be much less vital for German carmakers than Donald Trump’s risk of upper tariffs.

“The US, Mexico and Canada have signed the USMCA free-trade agreement. Imposing higher US import tariffs on vehicles from Mexico would violate this agreement. They will harm US companies in particular because they are the ones benefiting most from the North American production network,” the VDA spokesperson instructed DW.

This article was initially written in German.