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The Impact of COVID-2019 on Mexican Economy

This year Mexico is facing an economic crisis. Even though preventative measures were put into place, the virus has moved outside of China, to Asia, the Americas, Europe, and Oceania. It is unquestionably due to the interconnectedness, interdependence, and globalization of most of the world’s economies. Especially China’s, which has taken in many global companies that see this nation as part of their strategic value chains and of the fragmentation of their global production, making them vulnerable to these types of events.


What was once a good strategy for the Asian giant, in terms of betting on increasing these strengths, has now become its Achilles heel. The competitive advantages derived from its location and all it represents, being the best in price–cost ratios, differentiation, logistics, and financial services, would be at risk with the global health policies that will flourish from this incident

Photo from: El Diario de Ciudad Victoria


Meanwhile, countries that have moved their industrial logistics by acquiring capital goods would suffer the consequences of a shortage in spare parts or machinery that had already been planned as part of their production and delivery program. They simply will not be able to meet their orders, or their processes will be hit by a lack of raw materials or production supplies. There would then be a reduction in international consumption, and a downturn in fuel orders by the world’s second-largest economy, which would affect the oil-supplying nations, mainly in the Middle East, leading to a decrease in income for them. In the case of Mexico, there is a strain in the political sphere that is polarizing and dividing the society, when dealing with COVID-2019, there should be a more unified and coordinated national health and economic response to the looming crisis. Even though the current administration plans to reduce its world vision to relations with the United States (USMCA) and Latin America, it is indispensable not only to consider the reiterated idea of diversification but also to know what is going on in other regions. To do so, Mexico must have reference frames so as not to start from scratch when facing situations or contexts like the one with COVID-19. It would be pertinent to go beyond preaching and maintaining the discourse that everything is wonderful in the country and move toward carrying out urgent, long-term coordinated efforts. As we all know, hard, official data show that Mexico’s economy slowed down by -0.1% (INEGI, 2020), and forecasts for this year show a best-case scenario of -7% of economic decline (Standard & Poor`s, 2020). If we include the fact that one of the sectors to be most affected by COVID-2019—besides foreign trade, which accounted for approximately 77.6% of GDP in 2018 (Santander, 2020)—will be tourism, accounting for 8.7% of GDP that same year (INEGI, 2020), the situation is even more complex than it may seem. Mexico is not an island, and what has been going on in Asian economies will affect the country. Data do not lie. China, Japan, and to a lesser degree Korea are Mexico’s main trading partners in Asia, and Mexico depends on them for a significant number of inputs (auto, electric, manufacturing, and chemical parts, for example) and capital goods needed for much of the national production. Even though Mexico has a trade deficit with Asia of approximately U.S.$140 billion (Banco de México, 2020), which it makes up for through its U.S.$169 billion (Banco de México, 2020) surplus with North America, it must alter its economic–trade and investment strategies due to the current problem. We hope this virus is seasonal and that soon the threat of a massive outbreak can be neutralized, as well as the paralysis and negative effects on the health and economic structures in countries less able to deal with the situation. As we have seen, the answer to this great challenge is international cooperation and transparency. Even though we had not envisioned this problem, there have been cases in recent years, such as SARS in 2002, that show us that globalization does not automatically solve all the problems it entails. This difficult global experience shows us clearly that unexpected circumstances, such as coronavirus, should be taken into account as risks in countries susceptible to them. It is still too early to talk about a new international economic order, but what we can say for sure is that global production strategies (cost, focus, and differentiation) will have to adjust to the new dynamics of international economic relations that will certainly be full of uncertainty and circumstances like COVID-2019. It is time to act together and to put political differences aside, at least for now, to seek out the diversification options Mexico needs. Perhaps Asia will have to wait a little due to what is going on there, but Mexico has 13 free trade agreements (FTAs) with 50 nations. There are immediate options, such as the Pacific Alliance or the Caribbean, our third border, or the unexplored markets of Central Europe that make up part of other countries’ strategies, such as Austria. Let us remember that international financial markets are not wrong, and their behavior (profits) has not been very favorable the last few days.

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© 2020 Dr. Adolfo Laborde Carranco