How Will ‘America First’ Policies Impact Water Security on the Colorado River?

Water security on the Colorado River faces an ambiguous future, with the Minute 319 agreement set to expire.

By:  Meghan Curran, Lynx Global Intelligence

 

Tensions between the United States and its southern neighbor have risen steadily over the last few months. In January, a diplomatic standoff ensued as President Donald Trump announced his decision to move ahead with the construction of a border wall preceding Mexican President Pena Nieto’s White House visit, which was thereafter canceled.  The implications of President Donald Trump’s proposal to fund the building of a wall along the U.S-Mexico border by applying a 20% tax on Mexican imports disproportionately effects certain U.S. states. Colorado is one of these states.

Mexico is Colorado’s second largest market for export goods, besides Canada. In 2015, Colorado exported $1.08 billion in goods to Mexico, an 83% rise from 2010 levels, according to Commerce Department data (Denver Business Journal, 2017). Additionally, Colorado imported $1.72 billion in goods from Mexico in 2015 (a 164 % increase from 2010 levels). While there are numerous negative implications regarding trade between Colorado and Mexico under ‘America First’ policies, there are also human security concerns relevant to the increasing tension between the United States and Mexico.

One potential human security concern is water security, and the future of agreements between the U.S. and Mexico regarding the Colorado River. In 2012 the U.S. signed an agreement with Mexico establishing rules for managing water from the river, which runs from the Colorado Rockies to the Gulf of California. The river passes through seven states, and provided water for 33 million in the United States and Mexico. Under the 2012 arrangement, called Minute 319, the United States and Mexico agreed to share surpluses and shortages from the river.

In times of drought in the United States, Mexico agreed to accept less water in exchange for being able to store water in the United States during times of surplus, reducing the potential for harmful flooding. Prior to the 2012 agreement, the United States had sent the same amount of water to Mexico every year, despite the river’s waning levels and increasing concerns over drought in the U.S. southwest. Mexico, which has limited capacity for water storage, in return could store surplus water in Lake Mead, of great benefit to the U.S. since the lake is crucial to supplying water to the Las Vegas area. The United States also agreed as part of the arrangement, to support improvements to Mexico’s water infrastructure. Additionally, both the United States and Mexico agreed to provision a specific amount of water annually to the Colorado River delta area, which has become desert-like in recent years, endangering native plant, fish, and animal species. (New York Times, 2012)

Water security on the Colorado River faces an ambiguous future today, with the Minute 319 agreement set to expire at the end of 2017. With tenuous relations between the United States and Mexico persisting, and a water shortage on the river projected to be declared as early as 2018, the future of Colorado River, a lifeline for tens of millions of people on both sides of the border, is uncertain. It is still unclear how President Trump’s ‘America First’ policies might impact resolutions regarding future management of the river, but the delivery of water to 3 million Mexican households could potentially be at stake. Additionally, in 2016 Lake Mead recorded its lowest water levels since the construction of the Hoover Dam in the 1930s. Mexico’s willingness to continue to store water in Lake Mead in accordance with Minute 319 has the potential to significantly impact over 1 million people in the Las Vegas Valley, as well as the area’s massive tourism industry. (San Diego Union Tribune, 2016)

With water levels expected to continue to drop in the coming years, a renewed emphasis on binational cooperation between the United States and Mexico on the issue of water security is essential. Colorado, as both the source of this crucial waterway, and a key trading partner for Mexico, will no doubt have an essential role to play in helping to broker this future cooperation.

 

 

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Mexico is Colorado’s second-largest market for export goods, after Canada. Colorado exported $1.08 billion in goods to Mexico in 2015, up 83 percent from 2010 levels, according to Commerce Department data.

Manufactured food products represented about 25 percent of Colorado’s exports to Mexico in 2015, valued at $269.6 million. That was followed by chemicals (18 percent, $192.9 million), non-electrical machinery (10 percent, $112.1 million), and fabricated metal products (9 percent, $100.2 million).

And Colorado imported $1.72 billion in goods from Mexico in 2015, up 164 percent from 2010. Roughly half of those Mexico-to-Colorado imports were classified as computer and electronics products, valued at $856.3 million.

No. 2 was plastics and rubber products (9 percent, $150.8 million), followed by non-electrical machinery (8 percent, $135.6 million) and electrical equipment, appliances and components (5.5 percent, $95.3 million).

China in the Year of the Rooster

While many worry about President Trump and rising protectionism in The West, the mood across China is optimistic.

 By: Conner Murphy, Lynx Global Intelligence

 

This week China celebrates the year of the rooster, and in a week hundreds of millions will return to work, eager to see what the future brings. While many worry about President Trump and rising protectionism in The West, the mood across China is optimistic. Here’s why:

The Trump Question

What is President Donald Trump going to do next? This is the question on everyone’s mind, and indeed, nobody seems to know the answer. Mr. Trump’s executive actions (not to mention tweets) over the past week have certainly increased the likelihood US and China will experience increased trade friction. Mr. Trump has recently proposed a 20% tariff on all goods made in Mexico, and could potentially propose such a tariff on Chinese goods as well. Meanwhile, congressional leaders are floating a plan to tax imported goods on consumption, effectively implementing an import tax across the board, regardless of country-of-origin.[1] Such broad trade barriers are unlikely, as backlash from China would be swift. While Trump’s goals are unknown, Congress will act to prevent an all-out trade war; this would be detrimental to the American people, business interests in China, and national security objectives.  

Instead, barriers will most likely be imposed on specific product categories produced by the steel, electronics, and agriculture industries. This will disrupt some supply chains and place several large companies in Trump’s crosshairs, forcing them to choose between US or Chinese interests. If you are a shareholder in Apple, this may be worrisome, but it presents opportunities for smaller companies hoping to expand in the Chinese market, as they will be able to avoid most new regulations. Nonetheless, the future remains unclear, and it will be critical for companies hoping to succeed in Chinese markets to keep a close eye on developing relations and policies, and remain well-informed as to how any potential changes may affect their business interests.

Xi Jinping, the new champion of globalization?

Chinese president Xi Jinping recently made headlines when he attended the Davos World Economic Forum, where he gave a speech defending the merits of globalization in the face of growing protectionism in The West[2]. He emphasized the importance of global cooperation and held up China as a beacon of opportunity, listing off China’s planned reforms, infrastructure projects, and free trade zones in the works. Chinese Premier Li Keqiang echoed this message recently in a Bloomberg op-ed[3], in which he sought to sooth the fears of international investors. He emphasized that China is, “opening new sectors of the economy to investment and widening access to many others,” and further explains that to attract investment and increase domestic demand, China will be focusing on compliance oversight, tax reform, infrastructure development, entrepreneurship, and innovation. This is great news.

Like leaders everywhere, the Chinese leadership will always paint a rosier picture than exists, and the substance of these comments should be taken with a grain of salt. For example, while China has moved to promote investment in certain sectors, it has also taken serious action to further regulate internet access and protect domestic tech industries. The government has also used a heavy hand in financial markets over the past year, actively working to avert a collapse of the RMB and prevent a nationwide economic crisis. Most regulations and laws remain murky, and compliance is difficult across many sectors.

Regardless of these issues, reforms are underway, and global events will likely accelerate them. As many Western economies enter a new era of protectionism, China appears keen to stand out as a hub for global investment. With slowing economic growth, rising wages, and explosive urbanization, China is ready to tap into the potential of international investment and domestic consumer demand. The Chinese government does not like to shock the system, so these reforms will not happen overnight. However, the Chinese government clearly strives to stand out as a champion of globalization – and when the Chinese government really wants something, they tend to get it.

 

[1] More on the congressional tax plan:  Reuters. Breakdown: Border tariff vs. border-adjustment tax.

[2] Xi’s speech transcript [English Translation]: World Economic Forum. President Xi’s speech to Davos in full

[3] Li Keqiang’s full Op-ed: BloombergBusinessweek. China Premier Li Keqiang: ‘Economic Openness Serves Everyone Better’