Mexico lived from 1940 to 1982 a protectionist market characterized by unconditional support from the Federal Government to the countryside and to MSMEs, with credits, advice and monitoring of the investment, production, harvesting and marketing processes of the products. The results were evident with an average annual growth of the Gross Domestic Product of 6.2% for the entire period.
The commercial dependency with the United States of North America was little relevant and controlled by the Mexican government through import permits and tariffs.
The most important problems arose for the consumer with the tax burden at the borders, since the low levels of productivity in the country caused higher internal prices than those of the exterior in products that were generally of lower quality. To be able to buy imported products that were often cheaper, import permits had to be processed before the Ministry of Commerce and the customs taxes that finally made the products with higher prices than the national ones had to be paid.
In order to integrate the value chains of the agricultural sector, the government created companies with public capital in support of producers. The links were good towards the leaders who represented the producers, however, within the institutions the interference of the political parties was encouraged, in search of positions for their members, and resources for their political campaigns, mainly PRI. Politicians dedicated to the administration of state companies, caused corruption and waste of resources, which progressively increased internal and external public debt, impacting inflation and the deterioration of the exchange rate. Low Central Bank reserves and the growth of foreign debt with unpayable debt services increased pressure from abroad,forcing the Federal Government to sign the first Letter of Intent in 1982that it promised to adopt a free competition market under the following agreements:
- Liberation from import permits, Mexico's commitment to sign a bilateral trade agreement under the guidelines of the GATTCancel automatic adjustments to wages in relation to inflation, Combat inflation and minimal economic recovery, Overcome external imbalance, Strengthen public finances, Maintain a favorable result of Balance of payments Stimulate private investment Flexibility in the policy of controlled prices Providing reasonable profit margins for companies Fix wages according to the standard of living of the working class, their participation in income growth and the productivity of companies.Review non-priority public investment programs and their current expensesIncrease collection through tax measures, mainly direct ones,and through the increase in prices and tariffs of the parastatal sector Lower the deficit to 85% with respect to the GDP in 1983, to 55% for 1984 and to 35% in 1985, seeking to strengthen public finances and reduce dependence on external financing Severe restriction on spending current, strengthening the tax administration and increasing tax rates Stimulating savings and financial intermediation, reducing subsidies and promoting the development of the stock market as an alternative source of intermediation Flexibility in exchange rate policy to maintain competitiveness of exports, reduce imports and discourage movements capital speculative.Rationalize the protection system, including the tariff structure.
Disadvantages of Protectionism
The mandatory actions of the Mexican Government to negotiate credits and pay for foreign debt services was to apply the measures imposed, progressively opening the borders to imports, eliminating import tariffs and permits. The absence of cutting-edge technology in industry and agriculture evidenced the low internal competitive capacity, due to low levels of productivity and production volumes, accelerating the imbalance in the Trade Balance, with a continuous deterioration of the exchange rate as the only means adjustment of internal and external prices. The exchange rate of 12.50 pesos to the dollar in 1976 shot up to 2,483 pesos to the dollar in 1988 in order to maintain a balanced trade balance.
The value chains of the agricultural sector were destroyed due to the opening of international markets, forcing the domestic market to compete with a broad disadvantage, which led to the closure of crops, unemployment of producers and migration from the countryside to the city.
To lower current spending and budgetary investment and increase liquidity, the Federal Government begins the sale of state companies, created in support of MSMEs and the agricultural sector, dismantling value chains and leaving the competition at the mercy of producers who lacked knowledge of prices, quality, cost-benefit strategies and negotiation skills to help them sell their products on the market.
Mexico entered the GATT (General Agreement on Tariffs and Trade) in 1986, joining a free competition market, and in December 1993 entered the Free Trade Agreement with Canada and the United States, expanding the trade opening agreements.
In order to maintain the balance in the exchange rate and be competitive, agreements were needed between the government, unions and companies, who promised to control inflation and the slide of the exchange rate, freezing the prices of the inputs of public companies, materials premiums and finished products from private companies, and wages from unions.
The development bank that was a promoter of development and granted cheap loans within the reach of ejidatarios, small-scale farmers and micro-companies, today, had to grant loans only to solvent companies and limit support to companies and producers according to their ability to pay. The past due portfolio and the disputed portfolio should be recovered. Powers are granted to private banks to finance microentrepreneurs with cheap loans, however, the management of the past due portfolio and the disputed portfolio remains under their responsibility and risk.
From 1982 to the present year, free competition policies have fostered an average annual growth in GDP of 2.3%, average inflation levels of no more than 8.95% per year for the period from 1994 to date, and a deterioration exchange rate from 5.32 pesos to 20.66 pesos in the same period.
The division of income in the population between rich and poor is polarized, forcing the lower-income classes to look for other options as life alternatives. The concentration of capital forces the Federal Government to invest greater amounts of the Federation's budget in guaranteeing the rule of law and the protection of individual rights.
Advantages of Protectionism
The exchange of merchandise between Mexico and the United States increases with exports rising from 60 thousand 882 million dollars in 1994 to 373 thousand 930 million dollars in 2016. Imports rise from 79 thousand 346 million dollars to 387 thousand 064 million dollars in the same period.
The maquiladoras that in 1994 imported 20 thousand 466 million dollars and exported 26 thousand 269 million dollars, for the year 2006 they import 87 thousand 503 million pesos and export 97 thousand 401 million pesos. Starting in 2007, Banco de México incorporated the maquila into its trade balance statistics. If the percentage participation of the maquila in Mexican exports in 2006 remains at 44% for 2016, they would reach a total of 164,500 million. If the maquiladoras maintain their percentage share of 34% in 2006 over Mexican imports for 2016, their participation will be 131.6 billion dollars with a surplus of 32.9 billion dollars in the last year..
The current account balance with income of 432 thousand 563 million dollars and expenses for 460 thousand 421 million dollars in 2016, including the surplus of the maquiladoras, oil deficit for 12 thousand 823 million dollars and remittances of migrantsfor 26 thousand 970 million dollars, it presents a deficit of 27 thousand 858 million dollars, covered with foreign direct investment for 27 thousand 526 million. The absence of foreign investment would generate a deficit in the Banco de México Reserves for a similar amount.
Debt liabilities of $ 22,363 million plus $ 8,150 million generated by errors and omissions were covered with financing from abroad for $ 30,709 million.
Investment from North America and the rest of the world flows to Mexico as a result of its cheap labor with quality products at competitive prices that can be sold to North America, Latin America, Europe and Asia.
The Mexican workforce specializes in the production of new consumer, intermediate and capital products to meet world demand.
Skilled jobs are increased, diversified, and wages are improved reaching levels of specialization and ability to compete globally.
The entry of companies to Mexico of world competition, diversifies the cutting-edge technology, eliminating the barriers imposed by the United States and other nations to the entry of cutting-edge technologies.
Foreign investment in Mexico favors the entry of dollars and increases the purchasing capacity of nationals and foreigners of imported products.
The opening of international markets favors the conditions of the consumer to be able to acquire merchandise with low tariffs and in conditions of international competition. Products that are not manufactured in the country can be purchased in the domestic market or in the international market with the same facilities and payment conditions.
Capital can flow to the country that provides the greatest benefits, saving tariffs, capital costs, advantages in the exchange rate, costs of raw materials and services. They can also take advantage of the benefits of raw material availability and mobility of their finished products.
The presence of Mexico's entry to the GATT, the WTO or the FTA includes only trade relations. The mobility of capital and people is ruled out, however, the proximity of nations contributes to regional development by promoting the mobility of people, investments, technology, raw materials, services, and the development of legal frameworks to resolve related relationship conflicts.
The Trade Balance presents a deficit of 13 thousand 134 million dollars including the deficit of the oil industry and the surplus of the maquiladora industry, which exports products superior in value to imported raw materials as a result of the incorporation of labor.
The services balance shows a deficit of 14 thousand 724 million dollars including the surplus of remittances. The imbalance in the current account can only be covered with debt and resources from foreign direct investment.
Implications of a return to a new protectionism.
Protectionism is an attractive system for populist governments who hope to live in a closed economy that they can control in their investments, commerce, institutions, workers, companies, families, technology, income and budgetary expenses, without the condition of submitting to a competitive market that forces them to progressively improve their levels of efficiency and productivity in the management of public administration.
European and Latin American political parties have maintained their proposal to offer the unprotected people promises of change where they can become the protagonists of the emergence of a new economic model. The leaders of Latin America who have come to power do not present very flattering results for their peoples. They become lifelong rulers, claiming that they are the only ones who can lead their peoples to freedom, without realizing that they are leading them towards reductionism with closed economies, poor quality and expensive products, technological backwardness, internal and external indebtedness, and ignorance about the changes that are taking place in the world market.
The German government presents as a proposal a right-wing populism defined by a free competition market and favorable trade balances. It is a country open to migration, freedom in the mobility of capital, technology, workers, companies and discipline in budget management in search of the stability of its currency and the European market.
Asian countries have apparently open economies, however, they encourage investment by their companies abroad and limit foreign investment in their countries. they have no immigration problems and are exporters of their population to the world. They present surplus trade balances by accepting merchandise imports in lesser quantities than their exports and are open to the growth of technologies and advances in knowledge that can improve their social, cultural, economic and political development.
The model they propose is a globalized economy, open for the conquest of the world by their companies, but not an open economy model to be conquered by the companies of the world. Dealing with these nations can generate favorable balances in commodity balances with heavy losses in highly technical products.
By historical condition, Mexico experienced a protectionist market built by the absence of open relations with the United States of America. North American markets were opened to the Mexican market, when the abundance of oil in the Gulf of Mexico was discovered in the six-year term of Luis Echeverría Álvarez (1970-1976). The debt is renegotiated and the flow of dollars to Mexico begins and the legal entry of goods that for that period were only smuggled.
The surplus oil balance was not enough to pay for the flow of goods that entered the country and by 1982 it was necessary to sign the first letter of intent that forced Mexico to accept its entry into the free trade market with the United States.
The transition from a protectionism model to a free competition market begins in Mexico in 1982 and ends with the release of agricultural production in 2008.
The most complicated period occurs in the government of Miguel de la Madrid (19821988) and that of Salinas de Gortari (1994-2000).
The United States of America imposed on Mexico the entrance to a free trade market, and it does not have to impose the adoption of a protectionist model, since it is possible to work assuming a free market with the rest of the countries of the world. The measures of the United States, applied to foreign investments in Mexico, bilateral trade, the movement of migrants, the oil market, foreign debt and the maquiladoras, will force Mexico to take measures very close to protectionism, due to the volume of operations carried out on these issues as a result of the proximity to this country.
Conclusions
The complicated points in the negotiation and where the emphasis on decapitalization for the North American economy is presented are those with deficits in their balances.
If Mexico lacked the income from the maquiladoras, the income from migrant remittances and foreign direct investment, the country would present a deficit of 87 billion dollars per year.
Asian and European economies have a habit of maintaining surplus balances, so it would be difficult to obtain income from these economies that would allow them to maintain the rhythm of imports from Mexico and the dollars necessary to finance the shortfalls.
The alternative will be to limit imports to available payment capacities and meet national demands with domestic production. This option is attractive if it is possible to promote the totally forgotten commercial and self-consumption agricultural sector, and MSMEs with high capacities for job creation.
What is valuable in these actions is the time to make the transition of activities that the workforce currently develops in highly technical companies and in the logistics of marketing products for manufacturing, foreign investment and that can be developed by Mexican national investment companies. to which new markets must be sought.
There is already pressure on the sources of income generating foreign exchange with the exit of oil from this group, which currently has a deficit balance. If the pressure increases on the foreign exchange-generating lines, such as the maquiladoras, migrants, and foreign direct investment, the resources available for the import of machinery, raw materials, and consumer goods will begin to decrease, lowering the current rate of border operations between the two markets to the point where this process stops.
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Magic Mexico, Historical Series of the Gross Domestic Product of Mexico from 1896 to 2016 http://www.mexicomaxico.org/Voto/PIBMex.htm
Letter of Intent signed by the SHCP with the IMF on November 10, 1982.
Banxico. http://www.mexicomaxico.org/Voto/SobreVal02.htm
Calculations with data from Banxico. http://www.banxico.org.mx/SieInternet/consultarDirectorioInternetAction.do?sector=1&accion=consultarC uadroAnalitico & idCuadro = CA193 & locale = es
El Economista (March 20, 2017), Remesas registered a record in 2016.
The antecedent of protectionism is Mercantilism Balaam and Veseth (1996), Introduction to International Political Economic
Populism considers itself representative of the forgotten common people, and imagines itself as the voice of true patriotism. Fareed Zakaria. (January March 2017), Foreign Afairs Vol. 95 No. 6. The advance of Populism.
Of the 500 largest companies in Mexico, which are published in expansion, the United States participates with 19.8% in sales, 11.5% in profits, 10.4% in assets, 13.9% in capital and 16.2% in jobs. Mexico participates with 61.4% in sales, 70.5% in profits, and 71.1% in jobs. Japan 2.5% in sales and 0.7% in jobs. France 1% in sales and 1.2% in contracting. Spain 3.6% in sales 12.2% in profits and 1.7% in contracting. Germany 2.8% in sales and 1.8% in employment. Canada 1.3% in sales and 1% in employment. Expansion (June 15, 2016). The 500 Most Important Companies in Mexico, Mexico.
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