The last few years have been critical for trade globally, with the pandemic caused by COVID-19 being one of the main players in the changes. Aaron Rodriguez, a specialist with years of experience in global trade, explains the challenges facing trade in Mexico caused by the current crisis that has not yet completely disappeared.
“We must understand that countries like Mexico will have the challenge of rethinking their commercial and logistical processes in the face of this international panorama of uncertainty caused by the pandemic before COVID-19,” mentions Rodriguez.
According to Rodriguez and his specific analysis in the North American country, the arrival of COVID-19 unleashed a worrying context for world trade that has been weakening it greatly during the last few years. “Due to the rapid spread of COVID-19 and the measures that the current governments have had to take, serious consequences were provoked in the main world economies,” asserts Rodriguez.
He also mentioned that this pandemic caused countries to begin to realize the fragility of global chains. In the specific case of Mexico, it made it rethink its dependence on major world powers such as the US.
Mexico has a large window of opportunity because regional chains are the main basis for accessing international markets. For the expert, Mexico has an important competitive advantage in being connected to US economies and will recover faster than Latin America and Europe.
“Mexico has agreements with many countries to generate free trade agreements which allow its economy to flow and compared to other countries such as China it is not going to slow down,” shares Rodriguez.
It is worth mentioning that the recovery of the current economy has been asymmetric, with recovery in Asia happening faster and in LATAM, but in this region, there is a lot of informal work, and “it is suffering” as many of those workers are in services, a sector that is worse off than the others.
The current economy is asymmetric, which means that the price mechanism fails to determine the proper allocation of capital. In financial markets, for example, adequate collateral, risk, and reputation (ability to pay) are more important than the interest rate.
There is an asymmetric downturn. The decline in Asia was less than in the United States, Europe, and Latin America and now, looking towards this year, some countries will continue to have problems.
The unemployment rate in Brazil rose to 13.3% in the April-June quarter two years ago. This represents a loss of 8.9 million jobs in the period due to the COVID-19 pandemic. The current situation may have improved, but negative numbers remain.
Some countries, such as Brazil, put in place government assistance to eradicate the poverty caused by the pandemic and Mexico has not generated that. Mexico’s situation is not bad compared to other countries but not as good as in Asia.
Rodriguez also considers that what we are currently experiencing is an acceleration to migrate to the digital part “it was already happening, but it was slow, at least, not so fast,” many companies were not prepared for this world that accelerated digitization as SMEs.
Also, it was noted that people’s behavior tends to opt more and more for digital purchases. People “trust” because they see that it is “easy” and possibly will prevail by finding speed and offers with respect to face-to-face purchases.
Regarding regional chains due to the global pandemic, Rodriguez mentioned that they are being strengthened throughout the Latin American region; this will be a pillar of regional integration for Mexico. Regional value chains are a productive chaining process involving two or more countries with productive affinity, territorial proximity, and commercial complementarity.
The problems generated by COVID mean that international transportation does not favor regional trade.” It was detected that transportation does not favor, so it can be determined that for regional integration to continue advancing, infrastructure and logistics must be part of the packages of measures for Mexico’s economic recovery,” Rodriguez points out.
Consequently, the generalized border closures due to the pandemic have led to a significant increase in production in the most representative sectors for Mexico, such as manufacturing.
Likewise, together with the tensions in trade relations between the US and China, these may be factors that could lead Mexico to position itself as the world’s leading manufacturer.
Mexico is facing a very challenging situation that is unknown for how long it will continue like this. Still, above all, it is a situation in which the country has to identify its areas of expertise and exploit them to the maximum. Finally, Rodriguez commented that in the face of an uncertain and more regionalized world economy, it is unavoidable for Mexico to deepen regional integration.