US-Mexico relations: What will AMLO do?

His supporters call him disruptive, anti-establishment and close to the people. On Saturday, Andres Manuel Lopez Obrador was inaugurated as Mexico's new president. With an outsized character often compared to that of his US counterpart Donald Trump, political experts and business leaders foresee a potential collision course between the two.

This would be in stark contrast to the pragmatic path taken by his predecessor Enrique Pena Nieto — who was often criticized for not standing up to Trump, most notably when the then-candidate called Mexican immigrants "rapists" in June 2015. Yet Pena Nieto's predecessors, Felipe Calderon Hinojosa and Vicente Fox Quesada — who, unlike Pena Nieto, didn't actually have to work directly with Trump — have been vociferous in their criticism, calling Trump a bully, repeatedly slamming Trump's border wall and saying Mexico would never pay for it, and in Fox's case, even trolling the US president on the web through viral videos replete with jokes, skits and Mariachi bands.

Standing up to Trump

Mexico's new leader has shown a deeply socialist stance, ambitious political visions and outspoken support for Mexican immigrants. During his campaign, Lopez Obrador, commonly referred to by his initials AMLO, announced he would fight corruption and drug-related violence as well as deliver economic growth through large social development programs. But the shopkeeper's son has also put international trade relations and immigration policies on his agenda.

In the face of Trump's immigration policies, AMLO has displayed proud defiance. During his campaign last summer, the former mayor of Mexico City denounced Trump's family separation policy as "arrogant, racist and inhuman." Trump subsequently suspended the guidelines, but continued to criticize Mexico's alleged inactivity during the arrival of the migrant caravan of around 7,000 people. 

According to Duncan Wood, the director of the Mexico Institute at the Woodrow Wilson Center for International Scholars in Washington, D.C., AMLO might strike a deal with the US, offering migrants short term housing in Mexico, while they get the chance to apply for refugee status in the US. But if the two countries should fail to find any deal, AMLO might let migrants continue crossing the border without prior bilateral arrangements in place — much to Trump's dismay.

Read more: AMLO slashes his own salary in advance of taking office

Domestic policies with international effects

The US business sector has been anxious about the change in the Mexican government. And stakes are high:Mexico is consistently one of the US' top three trading partners.

In a nationalistic move, AMLO announced during the campaign that he would suspend bidding for oil production contracts in Mexico, which have attracted many foreign investors in the past, especially US companies. Instead, AMLO plans to reinforce the national oil state enterprise PEMEX to manage future oil production contracts. But Tony Payan, director of the Baker Institute for Public Policy at Rice University, told DW that private companies from the US might be unwilling to work with the corrupt and inefficient state-owned enterprise, making business between them more difficult in the future.

Monetary uncertainty

Additionally, investors could be scared away by an unstable Mexican currency. The 65-year-old president has announced expensive infrastructure investments and increased social spending, with the goal of improving international trade and stopping Mexican immigration across the Rio Grande. 

Financing the expenditure plans, however, would demand increased tax revenues — but it is not clear where these would come from, as no tax increases are planned by AMLO. If domestic socialist policies were not backed up financially, a speculative attack on the currency could occur on the peso, leading it to devalue massively. This would have strong effects on US-Mexican trade relations, says Payan. A low peso makes Mexican exports more interesting for the US, but Mexicans would be able to buy fewer foreign goods than before. Additionally, a volatile currency is never a good base for investors who look for predictable economic outlooks.

Read more: AMLO's election a turning point in Mexican history

Repercussions across Latin America 

In the long run, AMLO could not only change US-Mexican relations, but also affect those between the US and other Latin American countries. Even though the new president has emphasized the transformation of Mexico from the inside out, the country’s socialist turn will have significant implications on countries in Central and South America, thus setting a precedent for all countries of the Global South, says Wilson Center director Wood. Because Mexico has been one of the most important leaders of the developing world in the last 30 years, AMLO's appointment could create a domino effect, bringing more socialist politicians in these regions to power, lending their ideas a greater legitimacy in the future.

According to public policy expert Payan, time will eventually bring the "idealistic" AMLO back to reality. Until then, the US will face a southern neighbor and major trading partner with extremely different domestic policy priorities, affecting trade, finance, monetary and immigration issues — and thereby the greater political landscape of the Global South.