Mexico’s economy is declining & faces mounting threats
by Macario Schettino.
In my first column for The Mexico Brief, six weeks ago, I wrote that Mexico was in a recession. Now that we are nearing the end of the year’s first half, the evidence is even stronger. Although an unusual event in February has led many to think otherwise, the truth is that we are already seeing a generalized downward trend.
Consumption contracted year-over-year for the fourth consecutive month in March, and the preliminary indicator suggests no meaningful change in April and May. On average, the decline has been -0.5% compared to the previous year, starting from last October when the current administration took office.
In investment, the situation is worse. The decline began in September, and the following seven months have all shown negative numbers, averaging a yearly contraction of -4.4%, also since October.
In overall economic activity, growth since October is flat, with three out of those six months showing contraction. The impact is now noticeable in employment, with monthly declines and virtually zero annual growth. It’s worth remembering that — since the year 2000 — whenever employment grows at a rate below 1% annually, a recession is a certainty.
Except for employment data, which we have up to May, the rest of the indicators end in March and therefore do not yet reflect the full impact of global uncertainty caused by Donald Trump — especially since the “Liberation Day” event on the afternoon of April 2. We don’t know much about what has happened since then, except in the case of remittances, which saw one of the steepest drops on record in April: -12% compared to April 2024.
Crony capitalism
by Macario Schettino.
In the 20th century, the Mexican economy - like the rest of Latin America - chose a policy known as Import Substitution Industrialization. The goal was to produce in Mexico what would be consumed domestically, and to achieve that, tariffs were imposed on imported goods. In theory, infant industries would be able to survive, become competitive, and tariffs could then be eliminated. The opposite happened: tariffs had to be increased because domestic industry never became competitive. Eventually, the economy was completely closed off and suffered its worst peacetime crisis in 1982.
In 1986, an attempt was made to reverse course. Mexico joined the GATT, implemented an anti-inflationary plan, renegotiated its external debt, and even signed a trade agreement with the United States and Canada. After a deep but brief crisis, the benefits of NAFTA became evident. In the final years of the 20th century, Mexico grew at rates it hadn’t seen in decades.
In 2001, China joined the WTO (GATT’s successor), and the dot-com recession hit the United States. This derailed the Mexican economy, which was unable to resume strong growth, instead remaining at an average annual rate of around 2%. During those years, many studies - by Mexican and foreign academics, agencies, and institutions - tried to identify the reasons why Mexico could not grow faster.
A risky combination
by Macario Schettino.
I greatly appreciate the invitation to contribute biweekly to Mexico Brief. Since this is my first piece, I’d like to dedicate it to reviewing the current state of Mexico’s economy. Virtually all of the data we have predates Donald Trump’s arrival at the White House, though some indicators are more recent and may already reflect part of the impact of the decisions he has made.
From 1980 to 2018, the Mexican economy grew at an average annual rate of 2.2%, despite the domestic and foreign crises experienced during those 38 years. However, beginning in 2018, there is a clear shift in trend. The cancellation of the construction of Mexico City’s new airport had an immediate effect on market confidence, which was reflected in a depreciation of the peso and a rise in interest rates. During 2019, that decision was compounded by the obstruction of the ongoing energy reform, and investment steadily declined throughout the year. Before COVID and the lockdown arrived, there was already a contraction—reaching -1% in the last quarter of 2019 and -2% in the first quarter of 2020, although the final days of that period can already be considered part of the pandemic’s impact.
Claudia Sheinbaum’s stoic diplomacy faces its limits
by Andrés Rozental.
Much has been written and said about how Mexico’s President, Claudia Sheinbaum, has managed to avoid the kind of treatment Donald Trump has often reserved for countries with which he has grievances. Some analysts have compared her approach to that of former Canadian Prime Minister Justin Trudeau, who took a more combative stance. Trudeau responded to Trump’s provocations - like his comments about making Canada the 51st state and imposing tariffs on Canadian exports - with reciprocal actions and direct criticism. In contrast, Sheinbaum has never explicitly threatened retaliation. Nor has she directly confronted Trump on major bilateral issues such as migration and drug trafficking - topics Trump campaigned on and has made central to his administration.
Her relatively low-key approach to dealing with Trump, calling for patience and delay before responding to the US President’s constant assaults on Mexico, was seen by a majority of Mexicans, and many international pundits, as a model for how to “manage” a relationship with the author of The Art of the Deal.
Notwithstanding generalized applause for her stoicism and her high popularity, I believe it important to judge whether Sheinbaum’s strategy of accommodation has actually benefitted Mexico more than Chinese, European or Canadian reactions in dealing with Trump.
Editor’s Note: No cause for celebration
by Andrew Law.
Did Mexico dodge Trump’s tariffs? President Claudia Sheinbaum says yes. She told supporters this week that USMCA survived, that Mexico’s economy is strong, and that they should celebrate.
Mexico may have avoided new tariffs. But unlike various peer nations, it was already under heavy ones. Trump’s 25% tariff on non-USMCA auto imports kicked in Wednesday night. That hits over 40% of Mexico’s car exports. Steel and aluminum tariffs remain. And there’s the 25% general tariff on non-USMCA goods - about half of Mexico’s exports. These are already having impacts.
According to Sheinbaum, this week’s events shows the US “respects” Mexico and has a “good relationship” with it. If this is good, I’d hate to see bad.
Trump & Sheinbaum find it takes two to tango in the delicate USMCA dance
Since the start of the second Trump administration this January, relations between Mexico and the United States have been active, tense, volatile but overall polite. Despite the US administrations’ tough talk on immigration and trade - including the imposition of some tariffs as in the case of steel and aluminum - and the fact that American unilateral military action in Mexican territory against the cartels still remains a possibility, Mr. Trump has maintained a somewhat restrained demeanor with his Mexican counterpart, President Claudia Sheinbaum.
After a telephone call on March 6, both leaders agreed for a second time to a truce on trade tariffs until April 2 for goods imported to the US under the United States, Mexico and Canada Agreement (USMCA). More notable perhaps, Mr. Trump emphasized his respect for Ms. Sheinbaum and noted that relations are moving along albeit the difficult context. The tone certainly contrasts with that used by the US president with Canada, his other North American partner. As of now, Trump still asserts that Canada should become the 51st state, a notion that not only infuriates Canadians but baffles many Americans.
