The USMCA in graphs: More exports, more foreign investment but weak economic growth | Economy and Business

By the end of the 1990s, then-Mexican President Carlos Salinas de Gortari had successfully concluded the renegotiation of the foreign debt and already had his sights set on his next goal: signing a free trade agreement with the United States to boost the country’s economic growth. With a postgraduate degree from Harvard, Salinas de Gortari considered this a chance to boost Mexico’s economic conditions. As the 1990s dawned, the North American Free Trade Agreement (NAFTA), was born.

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The Mexican media at the time reported on the promises of growth that the agreement between Mexico, the U.S. and Canada held in terms of tax revenue, investment and exports. It would even curb migration, given the promise of more jobs in the three signatory countries. After nearly four years of negotiations, lobbying and drafting, the ambitious initiative passed both houses of the U.S. Congress in November 1993, as well as the Mexican Congress. Despite opposition from many sectors, especially from trade unions, NAFTA — now repurposed as USMCA — was declared a triumph, and was finally given the green light on January 1, 1994, with the elimination of 5,900 tariff items in Mexico and the modification of some 20 articles of the Constitution.

Thirty years later, the trade agreement has its pros and cons for Mexico. Experts agree that, over this period, Mexico has positioned itself as an assembler and exporter to North America but has fallen short in other areas such as innovation and growth.

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Adolfo Laborde, an expert in international trade, explains that the agreement was reached at a time of economic liberalization in Mexico, which kicked off in 1986 with Mexico’s entry into the GATT (General Agreement on Tariffs and Trade) and which continued with more privatizations and non-nationalizations. “The intention was to give ourselves a boost economically, through the installation of a large number of maquilas — factories to assemble manufactured goods, basically products from China, Japan and later from Korea and the United States,” he said.

Laborde adds that while Mexican exports tripled, several sectors were also damaged. In his view, the industrial policy disappeared and with it a large number of Mexican manufactured products. “With the 2020 renegotiation things have evolved; it is another type of treaty, but the spirit of free trade is still intact.”

The treaty meant the introduction of a growth model led by investments and exports, and there was particular focus on attracting foreign investment. According to official statistics, foreign investment in Mexico amounted to just $4.9 billion in 1993. By 2023, the figure for direct foreign investment exceeded $36 billion.

One of the sectors that has benefited the most in Mexico has been the auto industry. In 1993, there were 10 vehicle and engine manufacturing plants, represented by five brands; three decades later there are more than 37 plants operating in Mexico, with an installed capacity to produce more than 5 million vehicles per year. Trade figures show annual exports of more than 3.2 million vehicles, of which more than 80% go to the U.S.

Despite this year’s elections in Mexico and the US, trade between the countries has strengthened. Mexico remained the U.S.’ main trading partner, surpassing Canada and China with exports from January to October totaling more than $424 billion, which represents more than 80% of U.S. imports. Besides finished vehicles and auto parts, Mexican-based companies supply the U.S. with mechanical equipment, medical equipment, soft drinks, spirits, vinegar and fruit. It is also its second largest supplier of electrical appliances and their parts, mineral fuels and furniture.

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But the panorama of growth and consolidation has been less certain since November 5, when Republican Donald Trump won the presidential elections. Trump has threatened tariffs and a tougher review of the USMCA if he considers it no longer benefits the U.S.. Given the escalating trade tensions between the U.S. and China, Trump will not hesitate to put the North American bloc’s strategic agreement at risk.

Although Trump has not yet taken office, Claudia Sheinbaum’s government in Mexico has already jumped to the defense of the USMCA. A few weeks ago, Foreign Minister Juan Ramón de la Fuente met important U.S. investors in New York to discuss the future of the agreement, and stressed that Mexico and the U.S. are partners, friends and neighbors. This stance has been reinforced by the Mexican Secretary of Economy, Marcelo Ebrard.

The Mexican business community’s Francisco Cervantes Díaz, president of the Business Coordinating Council (CCE) has described the USMCA as the best deal for the North American economies. “We are going to come out well,” he said. “We have had 30 years of the Free Trade Agreement and we have always shown the capacity for understanding,” he said.

Although there is a united defense of the USMCA in Mexico, the outlook is not altogether promising. “The agreement is at risk; Trump can make drastic decisions and affect the entire production process, which is why the Mexican government is so concerned about sending the right signals to avoid Trump using drug trafficking, organized crime and migration as a pretext to affect the issue of free trade,” says Laborde. “Meanwhile, Mexico has already positioned itself with respect to China by announcing its intention to disengage and produce what has been imported from there. Given this scenario, we are heading towards a period of uncertainty.”

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