Some things never change: a difficult year ahead A Presentation to - - PowerPoint PPT Presentation

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Some things never change: a difficult year ahead A Presentation to - - PowerPoint PPT Presentation

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Some things never change: a difficult year ahead A Presentation to the OTAY MESA CHAMBER OF COMMERCE By Dr. Deborah L. Riner December 8, 2017 Hate to be pessimistic but Dr. Deborah Riner www.deborahriner.com Source of image:

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SLIDE 1

Some things never change: a difficult year ahead…

A Presentation to the OTAY MESA CHAMBER OF COMMERCE By Dr. Deborah L. Riner December 8, 2017

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SLIDE 2

Hate to be pessimistic but…

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: http://www.hec.edu/var/corporate/storage/images/knowledge/finance-et-comptabilite/finance-d entreprise/quand-les-dirigeants-surestiment-les-risques-apres-une-catastrophe/767280-2-eng-GB/Stormy-weather-Overestimating-risk-in-the-wake-of- disaster_reference.jpg

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SLIDE 3

Uncertainty Volatility

  • Presidential

election

  • NAFTA

negotiations

  • US tax code
  • Dr. Deborah Riner

www.deborahriner.com

Source of image: http://peakpointcap.com/wp-content/uploads/2015/09/Uncertainty.jpg

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SLIDE 4

Mexico’s prospects

  • Growth

– Better?

  • Inflation

– Coming down but still high

  • Interest rates

– New central bank head; also in the US

  • Exchange rate

– Weaker in the first half of the year

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 5

Post NAFTA, growth rates have synchronized…

  • Dr. Deborah Riner

www.deborahriner.com

  • 6
  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 6 7 8 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Growth Rate (Percent)

1982 - 2017

US Mexico

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SLIDE 6

Following NAFTA, Mexico’s inflation rate plunged

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Mexico US

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SLIDE 7

There’s still a challenge…

  • Dr. Deborah Riner

www.deborahriner.com

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mexico US

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SLIDE 8

Interest rates have followed inflation lower…

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 180.00

Feb 1985 Feb 1986 Feb 1987 Feb 1988 Feb 1989 Feb 1990 Feb 1991 Feb 1992 Feb 1993 Feb 1994 Feb 1995 Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Feb 2006 Feb 2007 Feb 2008 Feb 2010 Feb 2011 Feb 2012 Feb 2013 Feb 2014 Feb 2015 Feb 2016 Feb 2017

PerCent

Average Monthly 28 Day Cete Rate

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 9

And are likely to continue following the direction set by the Fed Funds rate

  • Dr. Deborah Riner

www.deborahriner.com

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00

Ene 2001 Ene 2001 Ene 2002 Ene 2002 Ene 2003 Ene 2003 Ene 2004 Ene 2005 Ene 2005 Ene 2006 Ene 2006 Ene 2007 Ene 2008 Ene 2008 Ene 2009 Ene 2009 Ene 2010 Ene 2010 Ene 2011 Ene 2012 Ene 2012 Ene 2013 Ene 2013 Ene 2014 Ene 2015 Ene 2015 Ene 2016 Ene 2016 Ene 2017

PerCent

Average Monthly 28 Day Cete Rate

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SLIDE 10

Exchange Rate

  • Dr. Deborah Riner

www.deborahriner.com

9.5 10.5 11.5 12.5 13.5 14.5 15.5 16.5 17.5 18.5 19.5 20.5 21.5 22.5

Fix Rate (MXP / US$)

Evolution of the Peso: January 2007 - November 2017

minimum price in month maximum price in month average exchange rate in month

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SLIDE 11

Even US and Mexican stock prices are synchronizing…

  • 50%
  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Dec 1, 2017 Percentage Change Comparative Performance of Dow Jones and Bolsa Index in US$

Dow Bolsa (in US$)

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 12

NAFTA…

Source of image: https://www.carew.com/barriers-successful-negotiations/

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 13

Prepare for the worst – and hope for the best

San Diego will feel the pain…

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: http://www.centexpatriots.com/preparation.html

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SLIDE 14

California would be hardest hit US state in terms of jobs displaced

Alabama Alaska Arizona Arkansas California Colorado Connecticut DC Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virgin Islands Virginia Washington West Virginia Wisconsin Wyoming

California Texas Ohio Michigan Illinois Indiana

Source of data: Petersen Institute for International Economics

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 15

NAFTA: more jobs with than without

5,665 1,322 823 403 35,150 4,504 47,793 7,872 83,426 Agriculture Mining Utilities Construction Mfg (non-auto) Autos Trade Transportation Services

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 16

NAFTA jobs…

0.1 0.2 0.3 0.4 0.5 0.6

Where jobs are created

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 17

Source of graph: https://www.brookings.edu/blog/the-avenue/2017/03/30/how-u-s-states-rely-on-the-nafta-supply-chain/

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 18

Where negotiations stand…

  • October’s 4th round

– December deadline abandoned – Now, March

  • Post 5th round

– More on that later…

Source of image: https://avatel.files.wordpress.com/2011/08/future3.jpg

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 19

Nearing completion…

  • Telecom
  • Energy
  • Digital commerce
  • Market access
  • Chemicals
  • SME access to markets
  • Sectors:

– Pharmaceutical products – Medical devices – Cosmetics – Wine & liquor

Source of image: http://www.hffinancial.com/wp-content/uploads/2017/04/easy-hard-button-400.jpg

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 20

The difficult…

  • Rules of origin

– Autos

  • Sunset clause
  • Dispute resolution
  • Government

procurement

  • Canada’s dairy

sector

Source of image: https://previews.123rf.com/images/andrewgenn/andrewgenn1611/andrewgenn161100070/65888668- Color-business-cartoon-about-difficult-coworker--Stock-Photo.jpg

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 21

Rules of Origin

  • Regional content

– 29 chapters in regional tariff schedule require regional content

  • 60% of cost (metodo de valor)
  • r
  • 50% of net cost
  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 22

Autos are the elephant in the room

  • US proposal

– 85% regional content, up from 62.5% – 50% US content

Source of image: https://imgur.com/gallery/y8ATc

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 23

Sunset clause

  • There is a precedent – in the WTO agreement

– Anti-dumping and countervailing duties – Safeguard measures – Subsidies and Countervailing measures

  • But, those provisions are

designed to limit restricting imports

  • Willing to review…

Source of image: https://en.wikipedia.org/wiki/Sunset#/media/File:Sunset_2007-1.jpg

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 24

Dispute Settlement

  • Chapter 19

Source of image: https://www.laleggepertutti.it/36726_mediazione-ecco-il-modello-del-documento-informativo-da-far-sottoscrivere-al-cliente

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 25

Government Procurement

  • US wants to limit

Source of image: https://buffalochronicledotcom.files.wordpress.com/2015/04/shutterstock_102358021-b2g-procurement-550x340.jpg

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 26

Tit for Tat

  • Post-5th round

– Canada: no chance of a deal unless US significantly alters contentious proposals – US: frustrated by lack of counter-proposals – Mexico: progress on many themes but others “unacceptable”

  • The “cooperation” threat
  • proposes limiting US firms’ access to government

contracts

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: http://www.spigglelaw.com/employment-blog/can-retaliation-include-a-failure-to-rehire/

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SLIDE 27

Aside from the rhetoric, watch for

  • Are construction projects to improve transit of

goods moving forward?

– On schedule or slowing?

  • Are new projects under consideration?
  • Immigration vs. trade

– Can trade continue to grow with crackdown on immigration?

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: https://resources.stuff.co.nz/content/dam/images/1/h/m/2/m/w/image.related.StuffLandscape SixteenByNine.620x349.1kknl3.png/1500785246282.jpg

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SLIDE 28

What’s next?

  • Next round January 23 – 28 in Montreal
  • Will the Trump Administration have to renew

“fast track”?

– expires July 31

  • Mexican presidential election

– Can Peña still get this ratified?

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: https://imageog.flaticon.com/icons/png/512/36/36601.png?size=1200x630f&pad=10,10,10,10&ext=png&bg=FFFFFFFF

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SLIDE 29

What happens if…?

  • US can withdraw
  • Bilateral treaties =

US preference

  • Dr. Deborah Riner

www.deborahriner.com

Source of image: http://partnersinexcellenceblog.com/wp-content/uploads/2017/09/Whats-next.jpg

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SLIDE 30

MAD (mutual assured destruction)

Source of image: http://alternatehistoryweeklyupdate.blogspot.com/2015/03/alternate-nuclear-wars.html

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 31

A few concluding thoughts on NAFTA…

  • There are political points and there are

economic realities

  • Is this really about China?
  • Careful with the Brexit error

– dire consequences of a “for” vote haven’t materialized

  • Dr. Deborah Riner

www.deborahriner.com

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SLIDE 32

A new president in Mexico

Source of image: https://www.aei.org/wp-content/uploads/2015/06/shutterstock_230064685.jpg

  • Dr. Deborah Riner

www.deborahriner.com