During the night of 8 November 2016, the world followed the US presidential election results as the drama unfolded. There was apprehension in Mexico as the prospect of a Donald J. Trump win became ever more real. During his campaign, Trump had adopted a hostile tone toward his nation’s southern neighbours, promising to build a wall between the two countries. He also promised to renegotiate – or even cancel – the North American Free Trade Agreement (NAFTA), claiming that the US was losing millions of jobs as factories moved to Mexico to take advantage of lower wages. The minimum wage in the US is close to US$10 per hour; in Mexico is nearer US$4 per day.

Mexico’s nervousness was well founded. The prospect of the US becoming a protectionist economy is not good for a country that sends close to 90% of its exports to the US market. However, what seems to have eluded many Mexicans that night is that a Hillary Clinton win did not provide Mexico with a much better outlook.

The greater of two evils?

In terms of international commercial policy, Hillary Clinton represented the opposite of Donald Trump: not a return to protectionism but instead broad liberalisation. Under Clinton, the US would have ratified the Trans-Pacific Partnership Agreement (TPP), eliminating import tariffs to US markets for several Asian countries with whom Mexico cannot compete in terms of low-wage industry, such as Vietnam; or in terms of technological development, such as Japan.

The ratification of the TPP by the US would have had disastrous consequences for important sectors of the Mexican economy. Mexico would have found itself in direct competition with Vietnam in the textile industry, while going toe-to-toe with the mighty Japanese automobile sector is unthinkable.

As such, Mexico has positioned itself between a rock and a hard place: it is doomed if the US turns to protectionism and it is doomed if it pursues further liberalisation. Over the last 30 years, Mexico has abandoned all efforts at industrialisation and implemented a maquila-style export model, based on its large supply of low-wage, unskilled labour. The model was based on the idea of taking advantage of its proximity to US markets and assembling goods in international production chains.

Photo Credit: Mexico Institute

A ‘race to the bottom’

However, technological advancements have left Mexico stuck in the mud. This plan has engaged the country in a “race to the bottom” wage battle with countries such as Vietnam and China. In fact, the latter has already usurped Mexico as the US’ largest trading partner by volume. Mexico has a growing commercial deficit with China, and its manufactured exports to the US have an increasing amount of Chinese-imported content.

Mexico thus needs to rethink its economic model. It is imperative for it to streamline and build its internal markets, industrialise and move towards higher value manufactured goods. The problem Mexico faces is that the countries that have successfully done so (for instance, the Asian tigers), have done it by implementing strong industrial policies that go against the neoliberal dogmas that have characterised Mexican governments for the last 30 years, both under the Partido Revolucionario Institutional (the Institutional Revolutionary Party, or PRI) and Partido Acción Nacional (the National Action Party, or PAN) administrations. Under neoliberalism, as economist Gary Becker once famously said, “the best industrial policy is to have no industrial policy at all”.

Is López Obrador the answer?

This is one of the reasons that many Mexicans, with less than a year to go until the next presidential election, see left-wing candidate Andrés Manuel López Obrador (or ‘AMLO’, as he’s known in Mexico) as a viable option. He is leading in the polls, and last June his recently-formed Movimiento Regeneración Nacional (National Regeneration Movement, often shortened to ‘Morena’) party received more votes than any other in the elections for governor of the State of Mexico – one of the most important administrative divisions in the country, and traditionally a PRI stronghold. Although the PRI candidate was declared the winner among accusations of electoral fraud, this was only managed through the coalition formed by the PRI with other parties. On a party versus party basis, Morena received more votes than the PRI in a state in which the PRI was believed to be invincible.

A recognition of the need to revise Mexico’s economic model is not the only issue fuelling López Obrador’s popularity. Corruption scandals affecting major figures from both the PRI and PAN have become commonplace. The fact that López Obrador has been fighting the system for more than 20 years without any personal corruption scandals strongly resonates with voters. It gives credence to his “us, the people” versus “them, the corrupt establishment” narrative, which might be very effective in the 2018 elections.

A strong case for leadership

López Obrador’s many detractors paint him as a left-wing radical incapable of governing the country. This criticism faces several obstacles. First, it fails to acknowledge that López Obrador has already proven himself an able leader. From 2000 until 2005 he was mayor of Mexico City, a sprawling metropolis home to close to 20 million people – more than many countries.

The policies that he implemented might be called progressive, but not radical. His approval ratings in Mexico City were high while he governed and have remained high ever since. For many, the city under López Obrador was better governed than the country has been for the last 20 years.

A second obstacle to the criticism of radicalism levelled against López Obrador is in the economic team that has advised him. It includes important businessmen such as Alfonso Romo and well-regarded economists such as Cambridge University-trained Rogelio Ramírez de la O. It might very well be the kind of economic team that can move Mexico in the right direction.

A long road ahead

If López Obrador does win in 2018, his biggest challenge will be managing expectations: Mexico has huge problems and solving them will be the work of a generation. It would be ludicrous to think that he has magic solutions for Mexico’s many problems and it would be wrong for him to promise anything of the kind.

However, he can certainly start implementing the kind of policies that the country needs in order to find its way back to the path of economic growth and industrialisation. He can also promise, as Winston Churchill once did, blood, sweat and tears. And if he delivers them, he might just be able to bring dignity to a political system that has fallen into disgrace, all the while breathing life into the Mexican economy.

1 COMMENT

  1. Thank you for sharing your valuable insights, Javier! It’s exciting to see that AMLO has a real shot at the Mexican presidency, and I would be curious to find out whether he will be able to deliver on his promises. Your country surely deserves a just and capable leadership.

    Saludos, y mucha suerte!

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