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Mexico's new president is promising big changes. Will that affect trade with Texas?

Andrés Manuel López Obrador, or AMLO, won big on Sunday. Now Texan business and agriculture leaders have five months to try to predict whether his expected stand-up-to-Trump strategy will hurt their bottom lines.

Newly elected Mexican President Andrés Manuel López Obrador gestures to supporters in Mexico City on July 1, 2018.

Only time will tell if Andrés Manuel López Obrador will go down in history as one of Latin America’s ineffective left-wing prophets or an underdog politician who led Mexico on a course to sustainability and independence.

But one thing is certain a day after the 64-year-old populist, referred to by Mexicans as “AMLO,” won that country’s presidential election by a landslide: Texas’ business leaders and elected officials are taking note of how the election could possibly upend the state's robust trading relationship with its southern neighbor. 

“I think the million-dollar question is not whether AMLO is going to move the country to the left, but rather how far he’s going to move it to the left,” said Mark P. Jones, the James A. Baker III Institute for Public Policy’s fellow in political science and the Joseph D. Jamail Chair in Latin American Studies at Rice University. “So, we’re going to see him attempt to keep his main campaign promises by reducing economic inequality, combating corruption and working to reduce violence in the country.” 

That López Obrador campaigned, in part, on those issues isn’t a surprise to political observers. But just how he goes about fulfilling those promises will likely affect Texas’ historically beneficial economic relationship with Mexico.  

“That means reducing corruption that benefits the private sector and, in the energy sector, making sure that international companies also pay more in order to gain access to the Mexican market than they would have under a different president,” Jones added. 

Jones said that while Mexico's current president, Enrique Peña Nieto, welcomed foreign investors with open arms, López Obrador sees them instead as a necessary evil, especially the energy giants eyeing investments south of the Rio Grande. 

“He’s pragmatic enough and realizes that to implement his social objectives and programs to reduce economic inequality, he needs the revenue from a robust energy sector,” Jones said. “And therefore [he] needs foreign investment. But he doesn’t want to. Chevron or ExxonMobil are going to be seen as a necessary evil, someone who is only being allowed in because Mexico needs their technology and investment.”

Eddie Aldrete, the senior vice-president of International Bank of Commerce and chairman of the Texas-Mexico Trade Coalition, said it’s too soon to tell what type of president López Obrador will be. But he said investors, business owners and elected officials will get a better glimpse in the months ahead; López Obrador won’t take office until December.

“He’s been labeled many things, but he’s obviously won the hearts and minds of his electorate,” Aldrete said. “And we’re going to see over the coming months, as he begins to put his administration together, the direction in which he’s going to lead the country.”

Aldrete said Texas agriculture interests will also be paying close attention to the new president's moves. When the Trump administration announced tariffs on steel and aluminum imports last month, the Mexican government responded by slapping levies on pork and other agricultural products. If that list expands, Texas farmers and ranchers could take a big hit, he said.

“We sell a lot of corn in Mexico," Aldrete said. 

An escalated trade war involving products that aren’t produced or grown in Texas could still have a significant impact on the state. The Texas-Mexico border is the gateway for products that flow north and south, regardless of origin or final destination.

In just the first three months of this year, Mexico and the United States saw $146 billion in two-way trade pass through their ports. 

The lion’s share of that trade flowed through Texas, with the Laredo port of entry seeing about $55 billion of that and El Paso handling $18.6 billion, according to WorldCity, a Florida-based trade company that tracks commerce data from U.S. census information.

Jones said the trade relationship could be affected by something as simple as President Donald Trump’s fiery rhetoric. That’s because López Obrador is likely to respond very differently than Peño Nieto.

“If President Trump tweets something, says something that’s offensive to Mexico, to Mexicans, AMLO is going to fire back and given what we know about President Trump, he’s going to fire back,” he said. “The hope will be that the conflict remains rhetorical and doesn’t affect the business climate and particularly trade. If trade is inhibited or reduced between the U.S. and Mexico, no state in the country suffers more than Texas.”

Jones said that would put Gov. Greg Abbott in an unconformable situation by potentially putting him between Trump and his supporters and the state’s business leaders, who cringe at some of the president’s shoot-from-the-hip governing and how it affects industry. 

“If there is an escalation, Greg Abbott may need to find himself as a mediator,” Jones said. “He’s not going to touch the rhetoric. Where he would get involved is if the rhetoric created action that reduces trade.”

Abbott’s office didn’t respond to a request for comment.

Former U.S. Ambassador to Mexico Antonio Garza said he was encouraged by the "forward-looking" tone in the president-elect's acceptance speech Sunday and in his positive thoughts on trade on the campaign trail. 

While Trump has repeatedly called the North American Free Trade Agreement a bad deal for America and has repeatedly promised he'd pull out of the trade pact, Garza said he doubted the agreement would be altered before next year.

"The leadership which has been lacking on trade is that of our Oval Office. The time for foolishness is long past and the big loser if we can’t get it done will be Texas,” he said in an email. “My guess is that given the long transition to power here in Mexico and our own pending mid-terms, we’ll muddle along under the current agreement until mid-2019 or so and then get serious about an agreement. But until then, the best we can hope for is status quo and sensible background noise."

Disclosure: Exxon Mobil Corporation, Rice University and Eddie Aldrete have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here

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