Mexico, it’s time to pivot.
Mexico’s southern border (image right), the intersection of Latin America and an important piece to its future. Image by NASA.
The anti-trade and immigration rhetoric from the U.S. administration has shaken Mexico at its core. There have been protests, boycotts of U.S. companies and goods, and political rivals are uniting behind a deeply unpopular President Enrique Peña Nieto. Families whose hopes and dreams revolve around prosperity for future generations are having to live with a peso that is at historic lows against the dollar. The impact of a trade realignment on jobs and U.S. multinationals operating in the country could slow 20+ years of cross border economic growth.
Let’s start with the immediate impact before looking at the big picture. The bottom line is that we do not yet know the macroeconomic casualties of an antagonistic U.S. presidential view towards its southern neighbor. Mexico, which has roughly followed the trajectory of U.S. GDP growth the past 15 years (more on whether this is good later), saw an upward spike in GDP growth during a Republican controlled Congress and presidency in the first half decade of the new millennium. An argument can be made that deregulation initiatives and tax cuts, could provide the gas that is needed for another spike in growth on both sides of the border.
With a cabinet that is comprised of business leaders and investors who have benefitted immensely from globalization, there may be more nay-sayers in the Trump administration towards wholesale change in the relationship than those who advocate for a true “America First” policy. There may be debate on a border tax and some restrictions on U.S. imports, but business and globalization usually prevail in free market economies.
However, the presiding mood of worry and fear in Mexico towards change with the U.S. relationship is, in some ways, misplaced. Instead of victimization, there should be a focus on what needs to be done to change Mexican society and confront its own problems of corruption, security and its reliance on the U.S. — Mexico partnership. This is not to say that there is some cause for anger against the vitriol espoused by President Trump and comments that can be seen as targeting a neighbor who has contributed much to the prosperity of the United States, but there is no denying that a lot of work must be done within its own borders.
A report released this year by Transparency International shows that corruption, which has plagued Mexico for years, has recently risen. While the large regional economies like Brasil and Argentina have started to develop reforms and institute changes to counteract corruption, Mexico has been behind the curve and the situation is getting worse. President Peña Nieto has been linked to corruption within his own family, which has weakened his response to a posturing United States and has compounded his dismal approval rating at the end of his term. Violence, which had seen a decline since the late-2000s, has also risen recently and is wiping out the progress that was made at the beginning of the EPN term.
Finally, one can make the argument that Mexico has been too comfortable with its ability to lure manufacturers and export to the world’s largest consumer market, while not expanding its reach into other global markets. In 2014, $291B in Mexican goods were exported to the United States while the next four trading partners (Canada, China, Spain and Brasil) accounted for a combined $44B, or 15%, of its global exports.
Even with these systemic problems, Mexico sits at the figurative crossroads of a new hemispheric world order and at the literal crossroads of North and Latin America, where there is a $5.3T regional GDP, a rising middle class and dynamic markets that can benefit from Mexico’s manufacturing, agricultural and financial sectors. The economic crisis, which started with low commodity prices and the bottoming of the crude oil market, does allow for opportunity in foreign direct investment as many sectors within the Mexican economy will benefit from a strong dollar and investors who envision strong returns on currency and are paying high multiples in the U.S.
Mexico needs to take action and fight that which is counterproductive to its growth and there is reason to be optimistic. A recent effort to introduce anti-corruption legislation gathered over 300,000 signatures and now must be debated and voted on in Congress. The change is rightly starting with the very people who have been most affected by years of corruption within the political system and one can hope that this momentum will spill over into the 2018 elections.
Mexico has been given an opportunity through a potential hardening in its relationship with the United States to tackle its own problems, fight corruption and violence, and pivot towards other regional and global trading partners. Whether they view it as an opportunity or not, is up to the Mexican people.
Stephen D. Marks is the principal partner of Emmersion, an international business development company with operations in both North and South America. -@stephendmarks
(All statistics, unless indicated otherwise, are from 2013 or 2014 figures from the World Bank. GDP for the purpose of this article is measured by PPP.)