In the wake of Trump’s prices, Mexico’s economy needs a rethink: the point of view of our CEO

Trump prices and the acceleration of robotics and AI trends should be alarm clock for Mexico.

Part 1: How did we get here?

Part 2: Why is a rethink of the Mexican economy necessary?

Part 3: What could a rensation of the Mexican economy look like?

The purpose of this three -part series is to reflect on the emerging trends in commercial protectionism (prices), AI and robotics, consider the potential impacts on Mexico and promote a discussion on possible solutions. Please share your reflections in the comments section and have an inspiring and engaging discussion and debate.

Part 2: Why is the Mexican economy necessary?

Mexico’s economy has become more and more dependent on the manufacturing sector, and its manufacturing sector depends extremely on the United States.

To what extent is it dependent? Almost 80% of everything from Mexico is exported to the United States… 80% !!! More than 80% of vehicles produced in Mexico go to the United States… .87% of automotive parts… .80% of aerospace products… 0.86% of electronics.

Now imagine for a moment that the United States can increasingly produce more of its own goods. Imagine that the progress of artificial intelligence and robotics make it possible to produce more and more goods with far fewer people.

It may seem unlikely for the past 30 years, but what happens if it does not happen? What would be the impact on Mexico and its workforce? Given this risk, what should Mexico do? What can Mexico do?

About 25% of all officially employed Mexicans, nearly 14 million people, are employed in the manufacturing sector. On average, 50% of foreign direct investments in Mexico during a given year are in the manufacturing sector. Imagine the impact on the economy and society for a moment if there were even slight changes to these figures.

So what kind of rethinking the economy of Mexico need?

In the wake of chaos price

To start answering these questions, let’s take a step back and remember key elements of the Mexican economy. I will simplify the analysis to keep things easier to explain.

About 30% of Mexico GDP is linked to manufacturing and industry. Tourism represents 9%; transfer of funds 4%; agriculture 3%; 2%oil. The other half of the economy is linked to other components of the service sector.

As mentioned above, almost 80% of Mexican manufacturing products are exported to the United States. Tourists from the United States represent more than 70% of international visitors in Mexico each year. About 78% of Mexico’s agricultural exports go to the United States. Almost all of the funds come from the United States.

Mexico is the most dependent country of another country in the world. A common expression, attributed to former president Porfirio Díaz, is “poor Mexico, so far from God and so close to the United States”.

Many people I talk about suggest that Mexico must start trying to reduce its dependence on the United States, they suggest that Mexico should look south in central and southern markets. Or develop closer links with Europe. Or develop a deeper relationship with China. I think this thought is imperfect for several reasons:

1. No country consumes the United States. There is simply no one else in the Americas district that even buys near what the United States is doing.
2. Many other countries, especially the largest economies in South and Europe, have a demographic problem. Their birth rates decrease, their populations age. In short, it will take a long time before returning to “high consumption” savings to which Mexico could sell manufactured products.
3. China has a problem of overproduction and commercial deficits with almost everyone. It seems highly improbable that Mexico is able to develop its economy by selling Chinese consumers.
4. Protectionism is increasing. With the drop in populations, the slowdown in GDP growth, the increase in the concerns of the supply chain and the increase in nationalism, I see no other important opportunity elsewhere for Mexico to sell its manufactured products.

Consequently, I think that Mexico must accept unequivocally that its fate is linked to that of the United States, for the better or for the worst, and in the predictable long-term future.

The country must also recognize that its growth model as a supplier at low cost of manufactured goods in the United States could be increasingly threatened. Even if the “America First” prices are calm, the growing trends in robotics and AI in manufacturing probably mean much less employment in this sector – potentially in a few years if we believe many experts.

Mexico must urgently start rethinking what will be its main economic engines in the future. It is in no way to say that the manufacture will be more important.

Mexico must continue to increase the value chain in manufacturing to continue to maintain and increase investments and employment in this sector. But it seems more and more unlikely that manufacturing is the engine of growth and job production for the economy it has been in the past.

The country must start by taking advantage of the many forces it has in this increasingly uncertain world. To name only a few:

1. Geographic proximity to the United States
2. Relative cost of living
3. Relative labor cost
4. Excellent time
5. Service -based culture
6. Deep culinary traditions and history
7. Deep cultural traditions and history

Given these forces and others, and with the risk that the manufacturing sector is not the employment and the economic engine of the past, Mexico must start to invest in different sectors (unable) to further diversify its economy and continue to provide employment and economic growth to its people.

Each of these areas will require a change of step in the thought, concentration and investment of the public and deprived sectors of what we have historically seen. The evolution of less dependence on manufacturing as an engine of economic growth and employment will take time, and success in each of these areas is far from guaranteed. But I firmly believe that by proactively redirecting, prioritizing, accelerating and encouraging investments in the following areas, Mexico can better control its own destiny.

They are as follows:

1. Tourism
2. Health care provision
3. Care for the elderly
4. Housing / life for expatriates
5. Food
6. Well-being
7. Infrastructure to support all of the above

In part 3 of this series, I will explore each of these areas, why I think everyone is important, and how Mexico could prosper in each of them. The third and last part of the series will be in the MND of tomorrow.

Travis Bembenek is the CEO of Mexico News Daily AND has been living, working or playing Mexico for almost 30 years.