And If Those Benefits from the US Don't Come?
Published in El Universal
(Mexico) on 28 April 2014
by José Luis de la Cruz Gallegos (link to
original)
According to an International Monetary Fund analysis, the Mexican economy is expected to recover in 2014 thanks to the recovery in the United States and other internal factors. The expectations of this international body and those of some analysts are based on the proven influence the American economy has over Mexico’s.
Among other ties, this interaction occurs through the exports that Mexican companies make to the U.S. market, which have a strong industrial component: During the first two months of the year, 81 percent of sales abroad were of manufactured goods, the rest were made up of petroleum and other primary products (agriculture had a 3.9 percent share).
Although exports grew in the first few months of the year, that will not necessarily continue happening with the same vigor, and the problem is the protectionist stance of the United States. Trade barriers have been put in place over the past few weeks against Mexican industrial and agricultural products, which will affect the country’s economic growth.
In this respect, the dumping accusations leveled against Mexican exports are bad news for a productive sector that grew only 1.7 percent in February, an insufficient improvement relative to the needs of the Mexican population, and that is not accidental: Cumulative growth during the first 15 months of the current administration is 1.2 percent, a figure that is higher than Zedillo’s (-)4.2 percent and Fox’s (-)0.5 percent, but lower than Calderón’s 3.2 percent.
Therefore, if the protectionist attitude of the U.S. continues ahead, the benefits of its recovery might not reach Mexico: The reactivation of its construction sector, as well as some of its industrial segments, will be curtailed.
Furthermore, the need to maintain the strength of exports is fundamental when we observe that the domestic market continues to lose strength. Growth was reinforced in February by an atypical increase in the primary sector (11.8 percent); however, the segment related to services and consumption grew only 1.9 percent.
Low retail sales, the growth in unemployment and job insecurity, as well as the effects of inflation during the first two months of the year, affected this, limiting the performance of one of the engines of the national economy.
What has been described above can be observed in the evolution of the economic cycle of the sector, which remains below the country’s potential capacity. Because of that, there is the possibility that the IMF’s reasoning and forecast will not be fulfilled: The weakness of the internal market could combine with low exports to the U.S. and undermine Mexico’s growth. Rapid action by the Mexican government will be needed to reverse this. As regards international commerce, the North American Free Trade Agreement should guarantee that discretional and unilateral measures are not applied against Mexican exports; however, this is not occurring, and authorities should take action on the matter.
The preceding is even more relevant when we consider that this is a negative precedent for negotiations on trade agreements, like the so-called Trans-Pacific [Partnership] (TPP): How will we guarantee fair treatment of Mexican companies?
As for the domestic market, it will be important to implement job preservation and creation measures, which involves the strengthening of the economic environment for companies operating in Mexico.
Promoting investment is one of the first steps needed, and for this, it is fundamental to strengthen the links between government and private industry programs. One of the greatest challenges Mexico faces is generating economic growth and quality formal employment; however, the protectionism of the U.S. and weakness of the domestic market are areas that require attention to boost the country’s development.
Among other ties, this interaction occurs through the exports that Mexican companies make to the U.S. market, which have a strong industrial component: During the first two months of the year, 81 percent of sales abroad were of manufactured goods, the rest were made up of petroleum and other primary products (agriculture had a 3.9 percent share).
Although exports grew in the first few months of the year, that will not necessarily continue happening with the same vigor, and the problem is the protectionist stance of the United States. Trade barriers have been put in place over the past few weeks against Mexican industrial and agricultural products, which will affect the country’s economic growth.
In this respect, the dumping accusations leveled against Mexican exports are bad news for a productive sector that grew only 1.7 percent in February, an insufficient improvement relative to the needs of the Mexican population, and that is not accidental: Cumulative growth during the first 15 months of the current administration is 1.2 percent, a figure that is higher than Zedillo’s (-)4.2 percent and Fox’s (-)0.5 percent, but lower than Calderón’s 3.2 percent.
Therefore, if the protectionist attitude of the U.S. continues ahead, the benefits of its recovery might not reach Mexico: The reactivation of its construction sector, as well as some of its industrial segments, will be curtailed.
Furthermore, the need to maintain the strength of exports is fundamental when we observe that the domestic market continues to lose strength. Growth was reinforced in February by an atypical increase in the primary sector (11.8 percent); however, the segment related to services and consumption grew only 1.9 percent.
Low retail sales, the growth in unemployment and job insecurity, as well as the effects of inflation during the first two months of the year, affected this, limiting the performance of one of the engines of the national economy.
What has been described above can be observed in the evolution of the economic cycle of the sector, which remains below the country’s potential capacity. Because of that, there is the possibility that the IMF’s reasoning and forecast will not be fulfilled: The weakness of the internal market could combine with low exports to the U.S. and undermine Mexico’s growth. Rapid action by the Mexican government will be needed to reverse this. As regards international commerce, the North American Free Trade Agreement should guarantee that discretional and unilateral measures are not applied against Mexican exports; however, this is not occurring, and authorities should take action on the matter.
The preceding is even more relevant when we consider that this is a negative precedent for negotiations on trade agreements, like the so-called Trans-Pacific [Partnership] (TPP): How will we guarantee fair treatment of Mexican companies?
As for the domestic market, it will be important to implement job preservation and creation measures, which involves the strengthening of the economic environment for companies operating in Mexico.
Promoting investment is one of the first steps needed, and for this, it is fundamental to strengthen the links between government and private industry programs. One of the greatest challenges Mexico faces is generating economic growth and quality formal employment; however, the protectionism of the U.S. and weakness of the domestic market are areas that require attention to boost the country’s development.