On Mexico’s imminent risk
Mexico’s President Claudia Sheinbaum during Sunday’s judicial vote. Image credit: Presidency of Mexico.
by Macario Schettino.
Last Sunday, elections were held in Mexico - very unusual elections that are virtually unheard of in any other country in the world. Judges, magistrates, and justices were elected in order to completely replace the Supreme Court, to create a new Judicial Discipline Tribunal, and to fill the federal and local electoral courts, which had been incomplete. Not only that - more than eight hundred circuit magistrates and judges were elected, for a total of 881 positions.
With this election, and the law that made it possible, the Judicial Branch in Mexico ceases to be autonomous and becomes subordinated to the Executive Branch, which also controls the Legislative Branch thanks to the qualified majorities it obtained illegally just days after last year’s presidential election. Put more simply, Mexico ceases to be a republic and becomes an authoritarian system. The new judges will take office in September.
This new distribution of power - or rather, concentration of power - is a major change from just a few years ago, when the USMCA was signed, and it actually contradicts that agreement. It adds to changes in energy policy, which are also incompatible, and I don't think it will make negotiations for a new deal with the United States and Canada any easier. Even more concerning, the risk for existing investments in Mexico has increased, as the mechanisms previously available for dispute resolution have disappeared.
The ongoing conflict between the United States and China should be an advantage for Mexico, as a natural replacement for manufacturing done in China. But for that to happen, there would need to be some confidence that the internal rules of the USMCA will continue to be respected. If that confidence is lost, other countries (India, Vietnam, Costa Rica) could take that opportunity instead.
Furthermore, after a six-year term marked by poor decisions in energy policy, we now face supply issues. For foreign investment, electricity is the most critical factor - and we don’t have enough of it. It is possible that investors might include their own electricity generation in their projects, which could be attractive to some. But not to all.
The lack of legal certainty, combined with electricity shortages, has led to dismal investment levels - already reflected in near-zero growth forecasts. The Bank of Mexico is effectively projecting stagnation for this year, and the analysts it surveys aren’t much more optimistic. Worse yet, expectations for 2026 are only slightly better, hovering around 1% growth. If these forecasts hold, we would be looking at three years during which Mexico’s economic growth barely exceeds half a percentage point per year, in line with recent years where growth averaged less than 1%.
A recession is a normal occurrence - it helps cleanse the market. Often, excessive optimism leads to the creation of unprofitable businesses, and only through recession do things return to sensible footing, making way for a new growth cycle. But the stagnation of an economy over six - or in this case, eight - years is something else entirely.
The rate at which assets depreciate is accelerating. Investments include buildings and machinery, but increasingly they involve technology and knowledge, which must be updated at a pace that cement and steel cannot match. After eight years, that capital holds little to no value. What this means is that many investments may simply be abandoned if USMCA negotiations break down - or if Chinese imports into Mexico are not brought under control.
One thing is clear about Donald Trump’s second presidency: there will be no “business as usual.” Expecting Mexico to return to the investment and growth trends it enjoyed before 2018 makes no sense. Without a policy that guarantees legal certainty and energy supply, the decline could become chronic. The Mexican government’s insistence—driven by ideology and the desire for political control - on destroying precisely what matters now suggests they haven’t realized the economic risk they are facing. They don’t have much time left to figure it out.