According to a Reuters Exclusive, The United States is moving forward with an energy trade dispute with Mexico. U.S. energy companies, like Chevron and Marathon Petroleum, are preparing affidavits to challenge Mexico’s protectionist policies. Here’s our analysis:
According to our research, Mexican state-owned energy firms have little to no difficulty obtaining permits while American firms have faced extreme difficulties. This prompted the search for a dispute settlement panel under the USMCA (United States-Mexico-Canada Agreement).
Since the election of President Andres Manuel Lopez Obrador, he has sought to enhance more of his domestic market. He has enacted protectionist policies to protect state-owned energy firms like Pemex and CFE while rolling back on other energy trade reforms. This is not the first incident either. The United States and Canada both have complained about Mexico’s trade policies over irregularities in how they treat Canadian and American fuel and energy companies since Obrador entered power.
If the United States and Mexico do not reach an agreement to level the playing field between Mexican and American energy firms, the United States could respond with retaliatory tariffs on Mexico to protect U.S. trade. The United States and Mexico have filed a few cases against each other over soft drinks, genetically modified corn, and other factors.
The United States is at a disadvantage when it comes to energy. Mexico protecting their energy firms, the shutdown of the Alaskan pipeline, OPEC extending their barrel cuts through December, and with no clear future for the Dakota Access pipeline, this all adds up to trouble for the United States.
The United States and Mexico traded $779 billion worth of goods in 2022, with $81.9 billion of that being energy products. The U.S. leads exports in petroleum and natural gas while leads in imports for crude oil. Keep in mind, that petroleum is made from crude oil and hydrocarbons or can be made from coal, natural gas, and/or biomass. The crude oil the U.S. is importing is being resold as petroleum and if Mexico continues to pressure American firms, the United States exports to Mexico will take the hit as well.
The United States must leverage the fact that the U.S. exports hundreds of thousands of barrels of petroleum and natural gas to Mexico. If Mexico continues to make it difficult for American firms to dig, their energy costs will also go up. The United States also needs to look more domestically when it comes to oil. As the U.S. continues to invest in green technologies for the long term, we still need oil to build up green infrastructure, build EVs, and slowly move away from oil. But, we cannot forget about the environment.
With the Dakota pipeline, there have been alternative methods to reroute the pipeline so it does not cross tribal land, but permits to reroute are going to take years. This red tape also adds to why the U.S. loses to competitors and cannot come up with environmentally friendly options. Mexico sees this as an advantage to control trade in their favor.
Retaliatory tariffs will also cause future trade issues. Retaliatory tariffs only have a domino effect on trade and the U.S. and Mexico cannot risk the $779 billion worth in trade. If the U.S. looks more domestically, the U.S. can still continue exporting the same amount of petroleum and natural gas while cutting down on imports from Mexico, improving the U.S. balance sheet as a way for Mexico to come to the table and find alternate methods to increase exports to the U.S. again, avoiding additional tariffs and continuing to boost trading between the U.S. and Mexico.
Author: Aleksandros Spaho