Mexico: A quick recap
The biggest current threats, opportunities, and blindspots in Mexican politics and markets.
Our deep dives will be back next week. For now, please enjoy this brief recap of where Mexico stands a few months into the Sheinbaum and the Trump administrations.
The greatest threats
As things stand, the biggest threat facing Mexico isn’t Trump. The way global tariffs have taken shape have set up Mexico to be a net winner. The biggest threats lie within the country itself, with the greatest looming in the near future: The effects of the judicial election.
Even in taking the government’s pro-judicial reform arguments in good faith, the popular election of every single judge and magistrate in Mexico presents logistical and philosophical challenges which could well derail the country. Business is in large part paralysed by the uncertainty as doubts over how competent and true to the rule of law this new judicial branch will be remain unanswered.
There is much to look forward to and The Mexico Political Economist will be covering the judicial ballot in depth as the June 1st election approaches.
Meanwhile, ongoing schisms within the seemingly all-powerful ruling coalition continue to present the government’s most pressing day to day threats.
Read more about these threats:
Mexico’s judicial reform explained
The largest blindspot
Mexico is on the verge of sleepwalking into making itself more vulnerable than ever before when it comes to its trade relations. On one hand, it faces the prospect of the dumping of Chinese goods; either as China makes up for lost US marketshare or as a genuine back door for its goods to sneak into the US via Mexico. The first puts Mexican industry at risk, the second risks incurring the wrath of the Trump administration.
The seemingly sensible option may be for Mexico to hike its own tariffs with China even further. Apparel brands from non-free trade agreement countries are already subject to a 35% import tax, along with a plethora of other tariffs ranging from 5-50%.
This may well be not enough, as the Chinese economy is willing to subsidise its exports, devalue its currency, and withstand pain to conquer foreign markets. Mexico may well find itself pressured internally and by the US to apply non-tariff restrictions, like those banning imports from places with production through the use of human rights abuses—as in the case of Xinjiang.
These tariffs would ease the pressure from Asian exporters on the Mexican economy, but in the long term, it could end up subjecting Mexico to an even greater dependence on the US—something Trump has shown to be a double-edged sword. Further integration into a market where over 80% of all of Mexico’s products already go to is a dangerous gamble in uncertain times. It is certainly not something Mexican government or business has seriously debated.
Read more about these blindspots:
The US fallout from tariffs on Mexican steel and aluminium
Mexico goes much further than tariffs to protect its industry
The biggest opportunity
After years of labouring under the delusion that the US-China trade scuffle started in the last decade would bring nearshored industry rushing to Mexican shores, the government is now working on a more clear eyed approach to economic development.
Plan México, the Sheinbaum administration’s ambitious industrial policy, is a blend of pragmatism and ambition. It recognises that the strategic industries that first developed under NAFTA and then the subsequent USMCA trade deals need to be bolstered in spite of protectionist rumblings north of the border. The auto industry, the electronics and pharmaceutical sector, and manufacturing broadly are covered by this part of the plan.
The Mexican government goes further, though, not limiting Mexico’s future to a relationship of low value-added dependence on its northern neighbour. In this part of the Plan, and despite raised eyebrows from more conservative sectors of society, the Mexican State is betting on the native research, developments, and implementation of the electro-mobility and semiconductor industries. In a nutshell, the government wants Mexico to make its own electric vehicles and computer chips from scratch.
Overall, the Plan understands that the State, the business sector, and the domestic market need to form deeper and more symbiotic relationships to thrive in the world’s current unstable situation.
And refreshingly, in an age of fear, Plan México proposes an optimistic vision of economic development. Bucking traditional thinking, it bets heavily on the domestic market and on innovation as a the country’s present and future drivers of growth.
Read more about these opportunities:
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