World at War and Consequences for Mexico | Article by Mario Luis Fuentes

Mario Luis Fuentes

The international panorama is marked by numerous armed conflicts that affect, even if indirectly, both international political stability and, within its framework, economic relations developing throughout the world, of which our country is a significant part, being one of the 20 largest economies in the world. planet.

Indeed, it must not be forgotten that we are an interdependent economy, deeply integrated with the United States of America and Canada, countries facing critical challenges arising from or largely related to these conflicts, and which are exacerbated by more pressing regional agendas such as migration. and the mobility of people from south to north.

In this context, the escalation of the conflict between Russia and Ukraine, tensions in the Indo-Pacific region and changes in US and Canadian foreign policy will undoubtedly have direct consequences for Mexico’s immediate economic future, especially in the context of the T-Pacific region. IEC; A question of the greatest importance, especially since what has been done in recent years has been completely ineffective in launching a new process of sustainable and sustainable growth. This is evidenced by the forecast for the end of 2024, for which GDP growth is projected at 2%.

The conflict between Russia and Ukraine, which initially began in 2014 and intensified following the Russian invasion in 2022, is one of the most critical points of global destabilization. Its consequences, of course, extend beyond European borders, as processes occur that disrupt certain supply chains, especially the world market for grains and cereals, fertilizers and other agricultural inputs that are necessary for global production, putting global food security under control. , in addition to a significant change in energy markets, since there are a large number of countries that consume Russian hydrocarbons quite significantly.

We should not forget that Russia and Ukraine are key suppliers of raw materials such as gas, oil and grain. As a result of the war, energy prices rose sharply, affecting production costs and inflation rates around the world; Experts do not rule out that in the event of further escalation of the conflict, inflationary consequences could quickly manifest themselves in all regions of the world.

In light of the above, the United States, as Mexico’s main trading partner, has stepped up exports of liquefied natural gas (LNG) to Europe, which could reconfigure its energy policy and put pressure on Mexico to strengthen its energy infrastructure, which will require not only action, different from those implemented in PEMEX; but additional demand for cleaner energy production.

Likewise, Mexico imports a significant portion of grains, such as yellow corn, white corn, and wheat, to name only the most important; In this sense, the idea of ​​achieving food sovereignty, understood as self-sufficient production, remains only a rhetorical aspiration; In comparison, the price of this type of product, in addition to meat, was affected by the reduction in Ukrainian exports to all regions of the world, in particular to the United States. In this sense, uncertainty regarding the duration of the conflict creates problems for national food security.

For their part, the growing militarization of Europe, the expansion of NATO and the use of advanced weapons in the conflict raise the possibility of a broader confrontation that would exacerbate global economic instability and could increase trade barriers and transport costs for Mexico.

All of the above makes us think about the direction of Mexico’s foreign and trade policy, which in recent years has been increasingly moving closer to China. It should therefore not be overlooked that the rivalry between the United States and China has shifted to the Indo-Pacific region, where tensions over Taiwan and the South China Sea present another scenario with the potential for armed conflict. This situation now directly impacts trade flows and global supply chains that are essential to Mexico’s key sectors such as automotive and manufacturing.

We are faced with new macro-trends that define an unstable form of globalization, characterized by a general crisis of unemployment; climate change and global warming; biodiversity loss and ecosystem change; and the enormous problems for nation-states posed by large corporations, both legal and illegal. Indeed, on the one hand, there are macroeconomic business strategies that not only evade, but also hide untold masses of wealth in tax havens, thereby limiting the ability of states to meet their obligations; on the other hand, there is transnational macrocrime that threatens the internal stability and governance of many countries, including the so-called BRICS and, of course, Mexico.

In this entire context, US policies to reduce dependence on China could benefit Mexico by nearshoring. However, the continuity of these flows depends on the stability of the USMCA, which is openly threatened by Donald Trump, and recently more Canadian voices have joined in withdrawing from the treaty if Mexico continues to turn towards China.

We are also facing a new era of migration, fundamentally driven by the poverty and inequality that have shaped human mobility in several regions for decades; but to which new processes are now added, determined, on the one hand, by criminal violence; on the other hand, due to the harmful effects of climate change, to such an extent that migration movements have become the agenda of the diplomatic dimension, defining the international relations of many countries.

In the midst of this reconfiguration of global scenarios, Canada and the United States’ insistence on environmental and labor issues, such as compliance with energy standards and respect for labor rights in Mexico, stands out, which if not met could lead to sanctions or trade restrictions.

The United States has called Mexico’s energy sector practices discriminatory against foreign companies, sparking controversy under the treaty’s dispute resolution mechanisms. Canada, for its part, has strengthened its defense of specific interests such as dairy and mining, indicating a less flexible approach to the treaty.

Clearly, Mexico cannot depend solely on its North American trading partners; Therefore, faced with the real possibility of losing benefits under the USMCA, Mexico must step up its commercial diversification. Markets such as Europe and Asia, although complex, represent strategic opportunities, but they must be managed based on political and diplomatic intelligence criteria on a global scale, avoiding increasing tensions with our northern partners; Because while it is true that we should not depend solely on our commercial relations in this region, it is also true that political realism requires a more reasonable position regarding our relations with them, since we will not be in a position to lose their support and support. interrelation of our economies.

According to this logic, better planning and much more coordinated investments on energy issues with the United States are urgently needed, as well as improvements to domestic supply chains that could strengthen Mexico’s competitive position in the face of global uncertainty.

Mexico also needs to strengthen its economic diplomacy to ensure compliance with T-MEC commitments and mitigate tensions with its partners. This includes proactively addressing environmental and labor issues.

It is undeniable that for Mexico, the stability of its relations with the United States and Canada under the USMCA will be key to its economic development in a context of high uncertainty. Signals about the possible cancellation of the agreement must be interpreted not only as a rhetorical challenge, but also as a real call from the political and economic powers of the United States and Canada; and to that extent, facilitate smart government action to strengthen its foreign policy and prepare for an increasingly challenging global scenario.

Researcher at PUED-UNAM