Understanding the Mexican Economy by Boyd Roy;Ibarrarán Maria Eugenia;Vélez-Grajales Roberto;

Author:Boyd, Roy;Ibarrarán, Maria Eugenia;Vélez-Grajales, Roberto;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2018-10-09T00:00:00+00:00

7.2. Trade in Mexico Prior to Nafta

For much of the twentieth century, policymakers in Mexico largely embraced a protectionist trade policy. After years of foreign domination in their extractive minerals sector, Mexican politicians were suspicious of foreign corporations. Consequently, they sought to spur economic growth by erecting trade barriers such as tariffs and quotas, subsidizing domestic industries, and nationalizing critical industries, such as fossil fuel extraction and electric power production (see Chapters 2 and 8). In pursuing such “import substitution” policies, Mexico adhered to a strategy which was quite popular among developing nations at that time. Indeed, in the late 1800s and early 1900s, the US had pursued similar policies to protect its “infant industries.”3

Mexico’s import substitution policies were strongest in agriculture. There, government reforms enacted after the Mexican Revolution redistributed land from wealthy landowners to “ejidos” run by local farmers and managed by the government. Domestic farm production was heavily subsidized by price supports, while most imports of foreign agricultural products were subject to import licensing and substantial tariffs.4 Other sectors also obtained protection from foreign competition. The manufacture of domestic auto parts, for example, received government subsidies,5 and a combination of limitations on foreign investment, tariffs, licensing agreements, and quotas severely limited foreign competition throughout Mexico’s economy during the 1950s, 1960s and 1970s.

Few incentives existed to alter the course of policy over these years. Up until the early 1980s, Mexico’s economy showed little signs of slowing down. Economic growth during the 1960s and 1970s averaged between 5% and 7% per year, unemployment was relatively low, and few people questioned the wisdom of an “import substitution” strategy. All of that changed, however, in the years following the 1982 financial crisis. Between 1983 and 1988, Mexico’s average GDP growth fell to a level of just 0.1%, and critics began to point to the economic inefficiency of protectionist measures.6 Taking its cue from the export-led industrialization policies of Asian countries such as South Korea, Singapore, and Taiwan, the administration of newly elected Mexican president Salinas de Gortari moved quickly in 1988 to dramatically lower trade restrictions, and began negotiations with the United States and Canada to form a North American free trade area. The resulting treaty, known as NAFTA, was signed on December 17, 1992, and following ratification by each country’s legislature, went into effect on January 1, 1994 (Villarreal & Fergusson, 2017).

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