The US betrayed Mexico
“Liberalisation is worth the economic pain” went the common sense—until the US started to feel it too.
Golly these Mexicans are sneaky. Some of them, one assumes, are good people. But the overarching feeling across the United States and Canada these days is that Mexico plays dirty to get ahead. As China’s back door into North America’s markets or by turning a blind eye to the fentanyl trade.
The rise of economic nationalism unsurprisingly brings with it a scapegoat mentality. That Mexico lies at the centre of US and Canadian ire is not surprising but nonetheless disappointing. Disappointing because of how much Mexico tried for decades to live up to the standards set by the US, only to have the rug pulled out from below it—in the form of threats of tariffs—just as it seemed to be succeeding.
Too obedient for its own good
From the early 20th century, Mexico was for the most part a closed economy. The collapse of its financial system in 1988 provided the incentive for change. At the time, financial and trade liberalisation was what the doctor ordered, so Mexico was to become one of the world’s most open economies. Today it has free trade agreements with 50 countries—more than virtually any other in the world.
Liberalisation came at enormous cost. Local industry collapsed for its uncompetitiveness on the open market. Impoverished rural workers lost their lands to industrial landowners, unable to compete with subsidised US agro-industry.
Yet the country’s leaders and the liberal international community were happy to bury their heads in the sand. Apart from being a lucrative opportunity for Mexico’s new industrial class and the world’s transnational corporations, the liberal creed of the late 20th and early 21st centuries was that their prescriptions were objectively the best and only way to achieve national prosperity.
The resistance movements that emerged in response were declared anachronisms and put down with violence. Most notably the Zapatistas, an alliance of Mexico’s poor southern indigenous communities, who rose up in arms on January 1st, 1994. It was the same day the North American Free Trade Agreement (NAFTA), signed alongside the US and Canada, came into force.
Violence was justified because Mexico was finally to gain access to prosperity as a part of North America.
Decades passed and, despite huge increases in industrial production and exports, most Mexicans remained poor. Real wages fell, diverging from rather than converging with their US and Canadian counterparts.
Leaders insisted this was the only thing that kept Mexico competitive—even as the rest of Latin America saw a prosperity boom. The same reasoning was used to keep workers’ rights and democratic unions off the negotiating table.
When, back in 2013, The Mexico Political Economist asked a US policy maker if the gains of NAFTA were worth the costs, the reply was simply: “NAFTA is working exactly as it was designed to.”
China’s first North American victim
Fast forward to 2024 and the liberal order ushered in three decades ago is all but gone. The US has bipartisan agreement on strong State intervention and protectionism. Anything to stop a Mexico-style stall (if you're middle class) or collapse (if you’re working class) of living standards.
The main antagonist and focus of the US’ renewed and muscular State action in the economy is China.
Today, precious little is said about Mexico’s own experience with China, which in 2000 joined the WTO to great fanfare from the US. Mexico was a direct competitor and its industry was devastated, unable to compete with China’s low wages and subsequently with its increased industrial capacity. The apparel and footwear industries were hit particularly badly.
This was also the time in which Mexico’s heavy industry assembly plants—the maquiladoras—came into their own. The resulting economic figures of those years consequently showed a stagnant economy. But the numbers were misleading, much of the value created in Mexico left the country as profits for foreign corporations. What stayed was not evenly redistributed. Inequality exploded.
Of course, China wasn’t ‘doing’ this to Mexico. It was playing the game established by the Washington Consensus—the name that was given to the US’s programme of global liberalisation as the Cold War came to a close.
Privatisation of industry and open competition on the free market was the only way to prosperity. And so, Mexico followed the recipe: The industries that did flourish invested heavily in technology and automation, generating far fewer jobs than the millions of unemployed created by the death of previous manufacturing and agricultural work.
As the Washington Consensus reassured the well-paid Mexican politicians and industrialists that the pain was a precursor to prosperity, almost 3 million Mexicans migrated into the US between 1995 and 2000. But migration wasn’t the only side-effect of the Washington Consensus felt in the US. Working-class Americans felt it first, as labour intensive production that added little value to the supply chain shifted to places like Mexico.
China meanwhile did not linger at the middle of the pile. It invested heavily in industries that began to compete with ever higher sections of the value chain. Critics claim that China’s transformation into high-tech industrial power was based on ruthless State intervention and the theft of intellectual property (IP). This is true. It was a proven roadmap of reaching industrial development previously travelled by other, already rich, countries. Countries like the US, which has a long and storied tradition of cheating, coercing, and subsidising its way to success.
The Washington Consensus was very much a case of “do as I say, not as I do.” China had ‘played the system’ by playing the actual game on the US’ terms. Mexico, meanwhile, naively played the way it was told to.
Draining the swamp
While there was much concern over Trump’s “rapists and murderers” comments about Mexican migrants when he launched his first presidential campaign, what went largely unremarked—and what ultimately won him his election(s)—was his fixation on the unfairness of free trade:
“When do we beat Mexico at the border? They’re laughing at us, at our stupidity. And now they are beating us economically. They are not our friend, believe me. But they’re killing us economically.”
After years of slow recovery and sophistication by its industry and at great cost to its people, Mexico was now being called out for having been too good at applying the Washington Consensus.
What made the situation all the more bizarre was how much Trump and Andrés Manuel López Obrador, the leftwing president of Mexico between 2018 and 2024, seemed to agree.
On paper they were opposites, yet in practice both understood—at least tacitly—that their twin rise was a backlash against the unintended side effects of what had, by then, become widely termed “neoliberalism”—previously a derisive and obscure academic term which peaked on Google in November 2016.
Both presidents represented the growing ranks of people hurt by neoliberalism versus the pernicious “deep state” and the self-serving ideals it represented.
The dismantling of many of Mexico’s liberal-era independent agencies can be understood through this prism—and why the government, now under president Claudia Sheinbaum, doesn't worry about the liberal opposition and the private sector’s vigorous protests.
“These independent agencies were created, not to end private monopolies—because, what has changed?” Sheinbaum said last week, on the day the regulators were officially dissolved. “No, they were meant to hinder State-owned companies. [Their elimination will] allow public companies to retake their role as the motor of the national economy.”
As late as 2018, State-run companies being the drivers of the economy would have been a laughable idea. Today it is Mexican government policy.
No universal recipe to development
There is no such thing as a recipe for prosperity; historical moments dictate what works and what doesn’t.
For instance, historian Rosemary Thorp makes a compelling case that the import-substitution model that made Mexico a middle-income country only really worked because it happened in the 1940’s, as the rest of the world’s factories churned out tanks rather than fridges.
Similarly, Mexico would have been punished for excusing itself from the Washington Consensus without Washington deciding against it first.
Nevertheless, Mexico has done a terrible job at preparing for this exact eventuality. Its enormous dependency on exports to a single country—84% of Mexican goods go to the US—and its depressed domestic market leave it looking very vulnerable in the age of Trumpian economic nationalism.
The Mexico Political Economist loves citing obscure thinkers who propose new approaches to old problems. In this case, Karl Polanyi, writing from the early 20th century, speaks perfectly to our historical moment. He encapsulated his argument with the phrase: “Laissez-faire was planned.”
Just as the US used protectionism and made the most of armed conflict in its rise to power, and just as China is now being accused of State intervention and IP theft to do the same, all countries need to understand that their development isn’t dependent on some universal law of economics. It is instead contingent on its situation in the global geo-political economy.
Mexico, given its existing industrial capacity, local talent, and integration into the North American market, has many options ahead of it. All will require a change in tack from its laissez-faire approach which, despite their rhetorical flourishes, López Obrador and Sheinbaum continued. This doesn’t mean Mexico should turn inward but rather turn into a genuinely innovative exporting power.
If Mexico is to turn a leaf from being “the world’s maquiladora,” it will need a concerted industrial policy based on the country’s strengths. This will require investment, both private and public, to boost locally developed industry. This will in turn require technology transfers and, in strategic areas, domestic research and development. There are glimmers of this approach, but not nearly enough.
Today, after decades of working within an economic system imposed from abroad, Mexico is in the fortunate position of having been betrayed by the US. It now has the dangerous privilege of getting to choose what path it goes down next.