Mexico Upends Criticism Over Its Energy Policies
Mexico may have caved to US pressure on its nationalist approach to the energy sector in an unexpected way. Amid a simmering dispute over US investment south of the border, Mexico has diffused tensions in a swift, if not bold, economic-policy move. The populist government now plans to build as many as five solar power plants, help retool car factories for electric vehicles, and even manufacture electric batteries and semiconductors in the Mexican border state of Sonora.
Details on the so-called Clean-Energy Hub are scant, but they are likely to be ironed out in advance of President Biden’s planned trip to Mexico in December. US auto manufacturers are the obvious beneficiaries.
The surprise announcement, injected into the Mexican president’s daily press conference, emphasizes strains in the USMCA agreement over US — and Canadian — investment in Mexico’s clean-energy sector. Among the complaints spotlighted by Washington earlier this year are delays in the granting of investment permits and the implementation of policies that overtly favor state firms, including the utility Federal Electricity Commission (CFE) and oil company Petróleos Mexicanos (Pemex).
Resolution of this issue was delayed by the resignation of Mexican Economy Minister Tatiana Clouthier in early October. While official language was accommodating, some insiders suggest that disputes between her and Mexican President Andrés Manuel López Obrador, also known by his initials AMLO, had reached a boiling point. Clouthier is the strong-willed daughter of Manuel Clouthier, the now-deceased agriculturist who channeled his vast wealth into a conservative political career in the 1980s.
Mexico would have probably lost any dispute-settlement arrangement. Its approach has favored “energy sovereignty,” a notion distinctly at odds with the principals of the USMCA agreement. The current populist government has actively unwound economic reforms launched in 2013, which then heralded the expected demise of state-run monopolies.
AMLO walks a fine line between appeasing his domestic political interests and cooperating on external, but vital, economic matters. These complex concerns are exacerbated by emotionally-charged border developments. Somewhat irrationally, most bilateral issues between the Mexico and the US are transversed by the wall.
According to US Customs and Border Protection, migrant encounters at the border reached a historical high in the US fiscal year ending September at 2.4 million. This robust rise is likely to further stir US public opinion against the Mexican government. For clarity, the bulk of migrants now crossing the border are arriving from Venezuela, Cuba, and Nicaragua.
Our base-case scenario is that economic and security policies centered on the Mexico-US border are likely to be the primary campaign issue in 2024 US presidential election and the coincidental 2024 Mexican presidential race. One reason is the evolution of inward-looking political strategies amid a faltering global economy. As a sign of the times, the governor of Arizona is now stacking shipping containers topped with razor wire in sections of the state border where US federal surveillance falters.
Our Vantage Point: On energy issues, the inherit conflict between a nationalist view in Mexico and a private-sector approach in the US means that prevailing back-and-forth will simmer in perpetuity. US public opinion, however, provides an important check on Mexican policies.
