Expanded trade, moves to bring manufacturing closer to U.S. dominate focus of Biden’s trip to Mexico

Expanding the U.S.-Canada–Mexico economic relationship in the face of a looming global recession is a central focus of President Biden’s meeting this week with his Mexican and Canadian counterparts — a summit of three leaders overseeing the world’s single most powerful free trade alliance.

Mr. Biden has benefited from President Trump’s success in reforming the alliance through the 2020 U.S.-Mexico-Canada Agreement (USMCA), whose output accounts for no less than a third of the world’s total gross domestic product.

Administration officials say they are keen to grow the tripartite juggernaut, even as other factors weigh on the summit Monday and Tuesday in Mexico City.

The reliability of Mexico’s claim to be cracking down on illegal fentanyl production and smuggling into the United States hangs over Mr. Biden’s meeting Monday with Mexican President Andres Manuel Lopez Obrador.

National Security Council spokesman John Kirby expressed optimism to reporters at the White House ahead of Mr. Biden’s trip by pointing to coordination between U.S. and Mexican law enforcement on the fentanyl crisis.

“We’re going to continue to work with them in lockstep to see what we can do jointly to try and limit that flow,” Mr. Kirby said.

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He praised Mexican authorities’ arrest last week of Ovidio Guzman, a son of former Sinaloa cartel boss Joaquin “El Chapo” Guzman, who is in U.S. federal prison.

“Mexico already has taken significant steps,” said Mr. Kirby, describing Ovidio Guzman as “a key fentanyl trafficker.”

The surging number of migrants at the U.S.-Mexico border is another sticky subject dominating the Biden-Lopez Obrador meeting.

Focus on ‘nearshoring’

The gathering of the two presidents and Canadian Prime Minister Justin Trudeau marks the first time Mexico has hosted a U.S. president since 2014.

Mr. Biden is scheduled to arrive at the National Palace in Mexico City on Monday afternoon and meet with Mr. Lopez Obrador before Mr. Trudeau joins them for dinner. Mr. Biden and Mr. Trudeau will hold talks Tuesday. The three leaders will then gather for a group discussion.

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Apart from drug smuggling interdiction and migration, Biden administration officials say, discussions will focus on climate change, cross-border manufacturing, trade, economy and the potential global clout of a more collaborative North America during mounting economic competition with China.

“Our partnership with Canada and with Mexico is crucial to our economic security, prosperity, democratic stability and, of course, migration management,” said Mr. Kirby. “This North American Leaders’ Summit will give us all an opportunity to strengthen those partnerships and advance shared priorities for North America.”

An analysis published Friday by the pro-business group Americas Society and Council of the Americas (AS/COA) noted the expansion of U.S.-Canada–Mexico trade over the past decade, including under the Trump-era renegotiation of the North American Free Trade Agreement into the USMCA.

“The new pact includes significant updates to NAFTA, including higher regional rules of origin for the auto industry, a rapid response mechanism for labor disputes, and stronger enforcement provisions,” the AS/COA noted. “It also updated or incorporated new digital trade, anti-corruption, and environmental provisions.”

“Regional integration has made North America an economic powerhouse. The region accounts for a third of global GDP, and its combined GDP has more than doubled over the past decade,” said the group, adding that “more than 5 million jobs in the United States depend on trade with Mexico.”

The analysis said the three-way economic bond has the potential to undergird U.S. efforts to secure North American supply chains’ “nearshoring” policies of moving manufacturing geographically closer to the U.S. homeland.

Some analysts say Mexico is poised to benefit from Washington’s embrace of such policies in the wake of COVID-19 global supply disruptions and in the face of potential disruptions caused by mounting economic competition and geopolitical tensions with China.

Mexico stands to gain as U.S. companies reconsider their relationships with China, according to The Associated Press, which has noted that Mexico’s proximity to the U.S. and existing trade agreements could be incentives for American factories to relocate south of the border.

Analysts at Bank of America estimated in October that Mexico could increase its trade by as much as 30% if more supply chains return to North America. The report notes a bump in Mexican manufacturing as U.S. policymakers and businesses increasingly focus on bringing trade to allied countries near American consumers.

“Every country is arriving with different priorities, but there is common ground,” said Enrique Perret, managing director of the U.S.-Mexico Foundation, a think tank focused on cooperation between the two nations. “It’s competitiveness, it’s economy, it’s education, it’s labor mobility.”

The U.S. imported more than $380 billion worth of goods from Mexico through the first 10 months of 2022 — the third-largest source of imports after China and the European Union, according to the U.S. Bureau of Economic Analysis.

Points of friction

Canada is the fourth-largest U.S. partner by imports, and the State Department calls it “the world’s most comprehensive trading relationship.” The U.S. and Canada are each other’s largest market for exports, and Canada is the largest foreign supplier of energy products to the U.S.

The alliance, however, has points of economic and other tensions.

U.S. and Canadian officials say the Lopez Obrador administration is trying to favor Mexico’s state-owned utility over power plants built by foreign and private investors, which the USMCA forbids.

Mexican and Canadian officials, meanwhile, have expressed wariness of Mr. Biden’s overall “Buy America” plan. Although the administration’s push for an expansion of electric vehicle manufacturing could be a boon to both nations because of the tax credits for North American batteries, there is concern that the U.S. allies will be left behind.

Another problem is fentanyl. The Drug Enforcement Administration seized 50.6 million fentanyl-laced fake prescription pills in 2022, up from 20.4 million in 2021, according to the AS/COA analysis.

The DEA has identified the Sinaloa and Jalisco drug cartels as primarily responsible for producing the fentanyl flowing into the United States, using precursors sourced from China and other parts of Asia, the analysis said.

On a positive note, the AS/COA noted that the U.S. and Mexico emphasized fentanyl and arms smuggling as top bilateral concerns since the High-Level Security Dialogue in October 2021.

A statement from the second annual U.S.-Mexico High-Level Security Dialogue in October 2022 said Mexican authorities were making “historic seizures of fentanyl” and that U.S. Customs and Border Protection “seized an average of more than 800 pounds of fentanyl each month in 2021.”

• This article is based in part on wire service reports.