US-Mexico relations could get even more complicated with Lopez Obrador

A breakdown in NAFTA negotiations would have serious economic implications for Mexico. The U.S. is by far Mexico’s largest trading partner, with more than 80 percent of exports going north of the border. Mexico is also the biggest exporter of agricultural goods to the U.S. In 2016 alone, Mexico exported $10.5 billion worth of fresh fruits and vegetables to the U.S., according to data from the Office of the U.S. Trade Representative.

Trump has threatened to rip up NAFTA unless he gets some big concessions, particularly for the U.S. auto industry. He has also threatened to slap steep tariffs on steel and aluminum imports, which would affect Mexico and Canada if they aren’t exempted.

Lopez Obrador might have a hand in the NAFTA talks if they get delayed and if he gets elected. “If most of the problems that are sticking points are resolved before he takes office, then [NAFTA] won’t be that big a problem,” said Reggie Thompson, Latin America analyst at Stratfor. “But if the talks are drawn out past 2018, then he could try to make his mark” and complicate the negotiations.

But the consequences of a victory by Lopez Obrador, nicknamed AMLO for his initials, don’t stop at tougher NAFTA negotiations. They also have significant implications for Mexican financial markets.

Some of Lopez Obrador’s proposals include giving free access to telecommunication services like the internet and doubling the pension for the elderly. He also said in his platform that salaries “will rise as a principle of justice and to promote domestic consumption and markets.”

If he gets elected “we expect a gradual correction in both the equity and fixed income markets, a gradual depreciation of the peso, and a gradual flight of capital, both in terms of portfolio investments, foreign direct investment, and even domestic savings from locals,” Rafael Elias, head of Latin America credit research at Exotix Capital, said in a January note. “The markets are likely to move in tandem with the polls if they continue to show AMLO leading.”

The Mexico S&P/BMV IPC index, the country’s main stock-market benchmark, is down more than 3 percent this year and is flat during the past 12 months.

“We also believe that if AMLO succeeds in implementing at least some of his social spending proposals, there will be little money left for the government to support productive activities and hence private investment could plummet as consumer confidence decreases, economic growth dims, and some of the most market-friendly reforms are (or are attempted to be) reversed,” Elias said.

Lopez Obrador is no stranger to Mexican politics. He was the government head for the Federal District, where Mexico City is located, between 2000 and 2005. Lopez Obrador was popular among his constituents, too, leaving office with an 84 percent approval rating, according to Consulta Mitofsky.

Despite his popularity, he ran unsuccessfully for president in 2006 and 2012, unable to shake his populist, left-wing image. Mexico’s presidents serve six-year terms.

But this time it could be different. Lopez Obrador seems to be hitting the right notes with voters.

Trump railed against Mexico while he was running for office. When he announced his candidacy in June 2015, Trump called Mexican immigrants to the U.S. “rapists.” He also said the U.S. would build a wall along the U.S.-Mexico border and said Mexico would pay for it.

Lopez Obrador said Jan. 22 he would “put Trump in his place” if elected. On Feb. 18, he said that if Trump insists on building the wall, “we’re going to turn to the United Nations to defend the rights of Mexicans.”

But that’s not the only chord Lopez Obrador is striking with voters. His campaign platform focuses heavily on corruption, an issue at the forefront of Mexican politics.

Last year, there were more than 29,000 homicides in Mexico, the most since 1997. The country has been dealing with violence for years, as authorities continue to battle drug cartels.

In his platform, Lopez Obrador says “the strategy to combat insecurity and violence will change completely” if he wins. “There will be coordination among the different police corporations, perseverance, intelligence, full respect to legality and human rights; the cooperation between authorities and criminals will end.”

“There’s a lot of criminal activity,” said Alberto Baez, a 60-year-old salesman from Cancun. “People are mad because the government has to provide safety for the people and that’s not happening.”

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