Adolfo Laborde：Professor, Universidad Anáhuac🤱，Visiting Scholar, 富达

1.State of the Issue

The USMCA will go into force on June 1 of this year. Despite the ups and downs during the renegotiations process, it is certainly a great window of opportunity for Mexico, especially since the changes to how it works, including rules of origin, will force more global firms to set up shop in the country. Add to this scenario the end of trade negotiations with the European Union, the impact of Covid-19 on large value chains, international logistics, and the devastating energy crisis (price plunge), and Mexico could take advantage of the current situation to increase its global market presence through its supply and exportable demand. Along with a public policy of clusters at the federal, state, and municipal levels in the sectors where the country enjoys a competitive advantage, these factors could significantly help Mexico get ahead. Yet nothing comes about by chance. What is needed?

The answer is simple: more innovation in its economic diplomacy. Without going into abstract ideas or a sterile criticism of how the current administration is operating, opportunities abound to improve Mexico’s performance and thus meet the goals set by the Ministry of Foreign Relations (SRE, in Spanish) and the Ministry of Economy (SE). Besides the abundant well-wishing present in speeches and declarations by some members of both ministries, I believe that it is not simply a budgetary matter but also one of human resources.

A true calling and multi-disciplinary knowhow are needed, specifically of the development and execution of global business, to meet the goal of diversification and economic reactivation of the exports sector. What capabilities does Mexico have in this area? A few, but members of the Ministries of Economy and Foreign Affairs must become more knowledgeable, which is not to say that they need to be trained. Rather, the people who work in these public-policy arenas must learn about and specialize in not only the development of businesses but also how to make them work.

2. Causes and Analysis

If we take into account Mexico’s current economic situation, the result of austerity measures that have cut resources, one option would be to set up alliances with national universities that have academic and practical experience in foreign trade and international business to help train personnel. A large budget would not be needed. In fact, the Foreign Ministry already has virtual infrastructure through the Matías Romero Institute, and more could be set up on other education platforms.

The first step would be to establish full cooperation between the ministries that cover this sector. They should combine their trade intelligence systems and create a super Mexican Strategic Trade Intelligence center. The next step would be to undertake a diversification strategy with more U.S. states, taking advantage of the new USMCA, since most trade is concentrated in just a few of them. Third, Mexico could make use of its famed network of Free Trade Agreements, 13 with 50 nations. It would be a good start. Then we could see if the Mexican government is willing and able. None of these steps will work if we do not listen to the people involved in the country’s import and export sectors. Each country has specific contexts and circumstances, such as Covid-19. A couple of immediate effects of the global health crisis are the breakdown of several production chains, and paralysis in almost every area of the economy, leading to a contraction in world markets, especially in Asia, which has been key to the dynamic international economic relations over the last few years. These crises must be turned into opportunity. Things will get complicated, especially since the international economic structure will have to be rethought so as to provide new production models and keep from falling into the same supply problems caused by Covid-19. What will Mexico have to do?

3. Expectations and Implications 

Mexico will have to go back to the basic rules of international trade, to tap into its absolute advantage regarding its geoeconomic capabilities. Moreover, it must maximize and make the most of its current Free Trade Agreements (FTAs), such as the CPTPP with Asia. They will be key to the reactivation of external markets, but they will not be enough. Besides market intelligence, it is indispensable for Mexico to have a commercial operations team, not only to develop and close deals with its main Asian partners (China, Korea, and Japan) but also to bring in foreign direct investment (FDI) from industries seeking to minimize risks through Mexico’s location.

It is highly likely that a good number of Asian businesses will seek establish themselves in one of the member nations of the USMCA. Mexico must seek out these investment opportunities. The sale of Mexican products usually exchanged with Asia will not be enough to help Mexico recover. It is necessary to recover the jobs lost with the Covid-19 crisis, and there are not many options for doing so; Mexico can use its own resources, or it can attract them. Indebtedness is not a viable option in the eyes of the Mexican government, so these resources must be brought in from outside.

The Ministries of Foreign Affairs and of the Economy, together with states and municipalities in Mexico that could receive this foreign investment, must come up with a roadmap to choose which sectors and industries to focus on. The economic and trade intelligence of both entities have probably already come to this conclusion, so it will be easier to align their objectives with the execution of the strategy. Furthermore, to assure greater sophistication and security for these future investments in Mexico, public policies should start to be implemented that allow this capital to be coinvested with national capital. In other words, the best legal framework is needed so that Mexican businesspeople, or the Mexican government, can be stakeholders in these projects, which will bring the country a high level of specialization, transfer of knowhow, and capitalization. It will naturally go hand in hand with a national cluster policy that will make sure that the best conditions are in place for this investment. It is good time to set up an aggressive strategy to reopen Mexico to the international economy. If not, others will take advantage instead.