Monday, January 30, 2023

Import Substitution and TMEC

last week the North American Summit in Mexico City, As is often the case at these events, there are several public meetings and some really important agreements. In this sense, I was surprised to hear President López Obrador speak of the “import substitution” committee that was agreed to be set up and in which representatives of the United States, Canada and Mexico would participate.

joint declaration The outcome of the summit does not speak of such an industrial policy. However, it does call for the integration of supply chains in the three countries, as well as the pursuit of greater regional competition through the promotion of specific investments in futuristic industries such as semiconductors and electric cars. In other words, it establishes the shared desire of the three countries that make up North America towards the consolidation of Nearshoring.

The word is in vogue. Any growth expectations for Mexico in the coming years are related to a phenomenon that has begun to escalate as a result of the conflict between the United States and China and the desire for supply chains to be closer to markets and less vulnerable to disruptions. The phenomenon is not new, but the moment is ideal for Mexico. adjacent It mainly refers to the idea of ​​bringing the production of intermediate goods, found today in Asia, mainly China, into the region; It is basically shifting production chains from Asia to North America.

The main beneficiary could be Mexico. Labor costs and the relative abundance of labor make Mexico the ideal destination for this movement. However, not everything on the bunch is honey. For a company to decide to move its production chain to Mexico, the country must guarantee that its investment will be profitable. A necessary condition for this to happen is that we can provide companies with electrical energy – primarily clean so that they can meet their global energy targets – in a reliable supply and at competitive prices. This is the main obstacle that will prevent nearshoring from happening on the scale that it could and, as a result, limit the gains in growth and installed capacity that the country can make.

When I heard the President talk about import substitution, I thought maybe that was the way he was presenting the concept of close, his ideology and way of expressing himself, but think about protectionist measures Without. However, editorial economist This week sticks its finger in the throat. They believe that heavy subsidies are being given in some countries, among them the United States, to promote certain industries, with laws such as inflation. reduction act And this Chips Act Restrictions on the export of a single country, or of certain raw materials, are all protectionist measures that will result in higher prices and misallocation of public resources.

Mexico should await with open arms this investment that could change the face of the country in the medium and long term, but we must also be clear that trade is not a zero-sum game. The gain of one should not be the loss of the other. In this trade agreement, and any others that we have, we need to see trade as an opportunity to engage.

*The views expressed in this column are the responsibility of the author and do not represent the position of the Institute.

Posted in El Universal.

17-01-2023

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