Mexico has left behind the first half of the mandate of the progressive Andrés Manuel López Obrador (AMLO). It has been a period characterized by recessive swings in the economic order, social discontent due to the lack of progress in inequality, criticism of health policy due to Covid-19, doubts about the peso’s exchange rate muscle, distrust in the fight against unemployment and general discouragement about the prosperity that Nafta 2.0 would bring, which came into force in the last stretch of the Trump Administration.
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But AMLO seems to have channeled the economic management of his six-year presidential term. Just one year before the starting signal of the electoral contest in Mexico that will reveal his replacement in the National Palace. López Obrador is in a position to leave a dynamic legacy for Mexico against market forecasts. It is true that, to a large extent, due to a succession of unexpected events that has blown up the foundations of globalization. The succession of disruptions in the planet’s value chains has been a luxury for the Mexican economy: from the tariff escalation decreed during Trump’s mandate to the alteration of trade and distribution routes due to the pandemic, through the regional relocation process of production and supply centers that, for decades, had been global.
In the first four months of 2023, Mexico has become the main supplier of goods to the US, accounting for 15.4% of the world’s leading power’s imports, compared to 15.4% for Canada and 12% for China. regarding the total foreign acquisitions of the White House. A demonstration of “the speed” at which the global economy and trade moves and transforms, explains Luis Torres, an economist at the Dallas Federal Reserve, for whom Mexico is once again the “old best commercial friend” of the United States. .
Three long decades of integration in Nafta
The Mexican economy leaves a record of more failures than successes in the three decades of belonging to Nafta. But only now, with the process of gradual productive approach to the large markets of auxiliary industries, neuralgic sectors such as the automotive sector or manufacturing companies capable of accessing mineral and metallic raw materials – explains Torres – is when Mexico is in a position to knock on the doors of heaven.
Local supply now leaves more evidence than anecdotal signs that the economy of the US southern neighbor is benefiting from the global increase in protectionism and the transformative resilience of value chains. “The data reveal that this phenomenon is consistent with the decrease in international trade and the rebound in regional exchanges; that is, with the relocation of production procedures,” he clarifies.
After the cost of maritime transport became uncontrolled after the Great Pandemic, a global collective consciousness of immediate delivery of goods by the so-called Amazon Prime Effect and the boom parallel of e-commerce and the permanent political tension between the US and China, have caused multinationals such as Walmart to launch circular trade mechanisms with neighboring markets.
“It is not the rupture of globalization,” says Michael Burns, partner at Murray Hill, an investment firm focused on value chains, “but the entry into a new era of the free circulation of goods and services that is based on networks.” regional” and which has led to the flow of manufacturing between Mexico and the US exceeding, between January and April, 234.2 billion dollars. Exports from Mexican companies to the northern neighbor registered a value of 157,000 million. “The Mexican Government must now try to maintain its preferential status with the United States,” which it achieved briefly in the two years preceding the pandemic, Torres warns.
““So close to God, so far from the USA”
The high Mexican plateau coined the old diplomatic proverb “Poor Mexico: so close to God and so far from the US” which has been used as a mantra to describe the tense bilateral relationship that has presided over their more than two centuries of coexistence. The New Cold War waged by Washington and Beijing, which calls globalization into question, is a unique business opportunity to turn Mexico into one of the driving forces among the large emerging markets and prepare it to make the leap to the club of the industrialized powers; even though it is a member of the OECD.
The strengthening of the Mexican industrial fabric to supply the intense demand of its northern neighbor is the lever that has been waiting for decades to raise the growth of the second largest Latin American GDP beyond the 2% annual average since it began rolling out in 1994. Nafta. The country’s economic growth has been well below emerging rates and has been too low to generate prosperity with the capacity to substantially improve per capita income and correct levels of inequality.
In 2023, BBVA experts have raised their growth forecasts for Mexico to 2.4%. Among other reasons, its economist Saide Aránzazu Salazar alleges, due to the dynamism of consumption, the incipient propensity to spend and the emergence of employment, which have caused savings in households and which reveal the vigor of the private sector and the acceleration of activity in this second half of the year.
In recent years, in addition, Mexico has configured several hubs logistics and industrial. The one in Baja California is one of the ones that houses the most American and Mexican companies, but the one in Monterrey has been the one that has contributed the most to designing the expansive manufacturing wave of the country. Monterrey’s new leadership is due to having hosted the production plant for Tesla vehicle chips. Two years ago, Elon Musk decided that the factory would not be built in Texas to take advantage of the competitive (salary) advantages of Mexican workers and lower the logistics bill for components from China.
This business center will house the Taiwan-based multinational Quanta Computer, whose vice president is the Mexican Pedro Campa, anticipates that it will be operational in December and that it will be adjacent to the Tesla mega-factory that will begin operating at the beginning of 2024. In your opinion, transmitted in various forums and to the agency Bloomberginsists on the challenge for his country to replace China as the world’s Great Factory and win this battle against markets like Vietnam.
AMLO shares the diagnosis. He predicts a wave of investments and credit lines in this direction, from capital funds and American companies, to increase the productive capacity demanded by his Nafta partners and shore up the competitive race with other emerging markets. All of this, the president points out, will “reinforce the growth potential” of the economy and will set Mexico on a path of optimism.
Groups from the automotive auxiliary industry such as the American AGP, specialized in the manufacture of windshield wipers, the Italian Brembo, in brakes, or the Chinese DSBJ, in electronics, have settled in Monterrey or have approved to expand their businesses. “More than thirty foreign firms have moved to the hub from the capital,” explains the governor of Nuevo León, Iván Rivas. One in five, Chinese, according to a BBVA survey, to avoid the extra tariff costs that the US imposes on purchases made in the Asian giant.
Even in an exceptional exchange rate framework that has led the peso, sensitive like few other currencies to the strength of the dollar, to be the emerging currency that has appreciated the most compared to the greenback American in 2023.