In my column last week, I shared my thoughts on a book called “The end of the world is just beginning” by Peter Zeihan.
In the book, Zeihan predicts an accelerated collapse of globalization in the years to come. He also predicts that North America — and specifically Mexico — will be big winners in this new world order.
Today I will dig more deeply into the big question: Why will Mexico be a big beneficiary of the “collapse of globalization?”
Geography
The book talks a lot about the benefits of “good geography” and Mexico clearly has the huge benefit of proximity to the U.S. market, a massive shared border with the U.S., and access to oceans both to the east and west.
Demographics
In a world of rapidly aging societies, Mexico stands out as having a relatively young population and relatively high birth rates. The point is not that Mexico won’t at some point have a demographics problem, just that it will happen decades later than most of the rest of the developed and developing world. These “good demographics” ensure that Mexico will be one of the best-positioned countries globally to continue to ensure both growing domestic demand (consumption) from its citizens, as well as a growing workforce to supply companies looking for labor.
Food security
Mexico is a net exporter of food, and the food it does import largely comes from the United States. This puts Mexico in a relatively safe position with respect to food security in a deglobalizing world.
Energy security
Mexico produces a lot of its own energy and is in the process of increasing its refining capacity, with energy independence possible by 2027. Even if this goal isn’t met, the proximity to the United States energy production and refining centers in Texas ensures that Mexico is extremely well-positioned with respect to energy security in a deglobalizing world. Mexico also has significant untapped wind and solar energy potential that has yet to be realized.
Trade agreements
Mexico already has trade agreements with 50 nations globally and a multi-decade comprehensive trade agreement with the United States and Canada (the USMCA, formally NAFTA).
The latest version of this agreement, ratified in 2020, increased the amount of “local content value add” that must occur within the block of countries to 80% in order for goods to flow free of tariffs. This ensures that actual value-added work (not just final assembly of parts made elsewhere) occurs in the region. This is a hugely important clause to drive investment and employment in the USMCA countries.
Labor skills and costs
Many countries are finding that their labor costs have increased to a point in which their workforce is no longer competitive except for doing the very highest skilled work. In many cases, this has pushed the work to a lower cost country, often far away from the home country. In the case of the United States and Mexico, the two nations’ workforces are highly complementary. The high cost/high skill work can remain in the United States while the lower cost/lower skill work can be done in Mexico — ensuring that both parts are completed all within the same region.
Logistics
The COVID-19 pandemic opened the eyes of the world to the risks of long supply chains. Multinationals are now far more aware and concerned about the time, cost, and risks of long or complex supply chains. Mexico is exceptionally well positioned from a logistics perspective. Highways and railways that can quickly and with low cost supply the United States and Canada and shipping ports on both coasts to receive and ship goods around the world. Mexico is actually the solution to many of the supply chain concerns and problems that the world has today.
The above factors along with others mentioned in the book make Zeihan confident enough to predict that, over the next 30 years, Mexico will have the fastest-growing GDP of any nation in the world.
That is such an important point that I think that it is worth taking another minute to look at the list above again.
Ask yourself: Does any other country in the world rank as highly as Mexico does on this list of critical factors? It’s tough to come up with one.
However, Zeihan did highlight several areas in which Mexico must make improvements to fully realize this opportunity such as the rule of law, expanding quality and depth of financial markets and dramatically improving infrastructure.
Zeihan stated that Mexico needs over US $1 trillion in infrastructure (transportation, energy, and water) investment in the near future to fully realize its potential, and that the country is actually already years behind on this important investment. Lack of investment in this area would act as a significant drag on the growth potential.
I ended the discussion by asking Peter what he would say to the many cynics who suggest that Mexico has a tendency to often under-perform versus its potential.
He stated that this opportunity is so big, and the relative strengths of the region so strong, that Mexico will benefit regardless of what has happened in the past. He sees Mexico “winning” in any political or economical scenario that could take place going forward. The next president of Mexico, to be decided in just a few months, has a huge responsibility to deliver on the promise of this opportunity.
It’s inspiring and motivating to read such a positive outlook for North America — albeit a decidedly not very positive one for the world — presented in the book. Mexico truly has a golden opportunity with this rapidly changing and deglobalizing world.
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Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for over 27 years.
Great articles. Inspiring perspective for those of us that live
or invested here. But the few things noted above to pave the way , like fixing “the rule of law”, is no small order. Unless large multinationals feel Mexico is a safe enough place to locate their headquarters, or raise a family, it will always fall short of reaching its full potential. That will require brave new leadership in the US and Mexico, with a focus on law and order, working together to get there.
With all due respects, there should be some depth of analysis when covering complex financial topics. The piece states: “Zeihan did highlight several areas in which Mexico must make improvements to fully realize this opportunity such as…dramatically improving infrastructure…(stating) that Mexico needs over US $1 trillion in infrastructure (transportation, energy, and water) investment in the near future to fully realize its potential.” I’d like to focus on this a bit by positing a simple question, as the writer himself did in his piece: “Where will Mexico find SEVENTEEN TRILLION PESOS for necessary infrastructure before this window of opportunity snaps shut?”
To start with, we know three things: (1) in late November 2019, Mexico announced an ambitious plan to spend $859 billion pesos ($44.3 billion US) on infrastructure, an enormous funding effort since historically the country had spent much less on infrastructure; (2) in October 2020, the president announced an innovative plan for public-private investment of $300 billion pesos in infrastructure; and (3) after all this, in June 2022, the OECD (The Organisation for Economic Co-operation and Development, of which Mexico is a member) ranked Mexico dead last among its world-leading, 36-member countries in infrastructure spending.
Thus, if $1.159 trillion additional/innovative pesos announced for Mexico’s infrastructure in late ‘19 and late ‘20 (and spent in ’20 and ’21) left Mexico dead last by mid-‘22 (and according to this article’s expert source also left Mexico “actually already years behind on this important investment”), where in the world is FIFTEEN TIMES that innovative block of $1.159 trillion infrastructure peso going to come from?
The entire federal budget for Mexico (the country) for 2024 is $9.07 trillion pesos (a 4.3% increase from 2023), and the country historically has spent .2% on infrastructure. If that level of spending takes place in ’24/’25, and, at most for this window of opportunity, ’26, Mexico will need an infusion of sixteen trillion or so more pesos, or else, as the article’s expert continues, “lack of investment in this area would act as a significant drag on the growth potential.”
Without staggering foreign and domestic investment at the cost of roughly 1.77 times Mexico’s current and total annual federal budget over the next three years (at most), much of all this quickly becomes little more than wishing, wanting, and hoping. I’m a businessperson with zero stake in politics; the bottom-line financial truth here is infrastructure development necessary for Mexico to realize the potential opportunity in front of it is a Herculean task. Here’s hoping it happens!
I think that you are absolutely correct Jeremy. Revitalizing the train system is a big step in the right direction on building a supportive infrastructure. Water, electricity and highways are other areas that need a massive infusion of capital. I still don’t have a definition of “globalization”. Lots of inferences but not a clear definition. I asked Travis to define for me what he is talking about. Can you please help me Jeremy?
There is nothing new or brave regarding the leaders in the US. A entire new generation of leaders is required for any progressive changes to occur.
I certainly hope the next president will not be a young globalist… I really pray it will be someone who actually loves and cares about Mexico and it’s people. If we follow Canada’s Liberal agenda it will end very badly.
How can you say the world is moving away from globalization? This is the most tyrannical movement we have ever experienced to bring everyone and everything into a one world government… isn’t that globalization?
Edna, we need a definition for “globalization”
“globalization” is a term used to describe how trade and technology have made the world more connected and interdependent. It’s a fancy word that allows rich nations to feel better about exploiting the worlds poorest workers to do a job for the lowest possible cost. Following Covid, it was realized that things can happen outside of our control and if you “globalize” all your manufacturing, you are at the mercy of everyone else’s problems – hence, the supply chain issues that rocked everyday life, drove inflation, and created a need to find inexpensive labor closer to home, that corporations can exploit for higher profits. Out of that, a new term was created… “Near shoring”. Taking advantage of cheap labor, only closer to home. Mexico would be wise to use this time to take care of Mexico. The US will not be in a place of negotiation as the relationship with China is weakening and it’s image in the rest of the world is diminishing, will force America to negotiate with Mexico. Mexico’s infrastructure issues, can and should be paid for by all the new businesses and investment being made. Charging a percentage or an “infrastructure charge” to every new development from foreign investors would take care of the issue. These investments being made in Mexico, are in large part happening out of necessity and won’t go away over an additional few million dollars to ensure they have good utilities, are safe/secure, and have proper roads/railways/ports to ship their finished products.
Informative. Well written. We have witnessed a whiplash in investment that had fled to Asia and now…over a decade later, many businesses are moving back and many new businesses from around the globe are opening in México. As one reader commented, México doesn’t had the funds or the political will to make the investments in infrastructure to accomodate the potential growth. However, many large businesses will make that investment. They will recuperate the investment through tax provisions and other financial incentives provided by the local, state and federal govt’s that will benefit. It will happen. Bar the door Mary!
A US ex-pat, I have lived in Mexico for almost 20 years. Nothing about the MND article surprises me. I am in a high-growth area and I see smart infrastructure moves being made consistently. YEP, it’s a lot of work and requires a lot of money, but at least in my area the money is arriving and the projects are being successfully completed. I credit the enormous generosity and compassion of the Mexican people for this positive energy and brilliant future.
Water water everywhere but nary a drop to drink. Z forgot about the little twist known as global heating-induced droughts.
excellent point and a very real, relevant issue
What people fail to understand (or are ill informed) is that Mexico is currently going through a transformation (La 4T), which is generating the highest international investment in history, has strengthened the peso (Super Peso), has the one of the lowest unemployment rates in the world, will soon be energy self sufficient, has trust in its president, has governability (hence world investment like no other time in history), will supersede the Panama Canal with the newly opened Istmo de Tehuantepec. There have been record number of roads, highways, railways, dams, solar, wind and other clean energies that have been built in this six year term. This article is spot on. If you get your news from Mexican conventional media you won’t read and actually learn what is really happening in Mexico. If your friends are wealthy Mexicans used to the old ways of making business you won’t hear a good thing about what is really going on in Mexico. Guess what, Mexico is undergoing huge changes that will benefit Mexico for years to come. The next president; Claudia Sheinbaum will continue with AMLOS’s reforms to the constitution, which are sorely needed to help strengthen Mexico’s burgeoning democracy and continue developing as a first world nation.
Where have all of these new roads, highways, and clean energy infrastructure been built? To my knowledge, none in the western part of the country… at least none can be observed. My experience is quite different. There has been little to no benefit to my family or community over the past 5+ years that was initiated by the current administration. While there are high hopes for the incoming new president, the current administration has concentrated on the politics of governing and less on the implementation of good public policy: ‘If you don’t agree with me, you are the enemy’… I believe he blames everything bad on neo-liberals and a press that he seems to think shouldn’t hold truth to power.
There is no question that previous administrations had glaring faults and extreme corruption, but at least there was some benefit to my family and community. When the communications sector was opened up, prices went down and local calls to the US and Canada began. Gasoline prices actually decreased once or twice. Since 2019, gasoline prices have increased by almost 30%. Natural gas? Almost double. Basic food? Tortillas, eggs, onions, meat… all way more expensive.
So, I’d like to know how billions spent on an incomplete train, a second Mex City airport, and a refinery at less than 50% production helps families and communities?
Read again: If you get your news from Mexican conventional media you won’t read and actually learn what is really happening in Mexico.
Since the question was asked, I am defining globalization in the context of this article as the “increased reliance of the supply chain and production process of a product on multiple countries (often across multiple regions in the world)”. For decades now the level of globalization given this definition has been increasing. However, there is increasing evidence and thinking that this process is now beginning to go in reverse for the first time in decades with a trend towards localization or regionalization.
The term I’ve heard for manufacturing for North America moving out of Asia and into Mexico, particularly along the border is “near-sourcing” which makes sense on many levels and is mostly good for Mexico, the U.S., Canada and South America.
Or alternatively, “near shoring”.
If appropriating the massive funds for absolutely mandatory infrastructure improvements is a herculean task – just wait until you consider the job of deployment of funds. The best efforts of these gigantic projects ALWAYS end up with “leaks” owing to poor administration. Mexico sadly will not be free from the sticky finger way of the world. I’d double the estimate of what it’s actually doing to cost
Thank you “Norse Hombre” and Travis Bembenek for the definition of “gloabalization”. I searched on line and this is what I found, “Globalization is a term used to describe how trade and technology have made the world into a more connected and interdependent place. Globalization also captures in its scope the economic and social changes that have come about as a result” – National Geographic Here is an example, “Thus, globalization can be defined as the stretching of economic, political, and social relationships in space and time. A manufacturer assembling a product for a distant market, a country submitting to international law, and a language adopting a foreign loanword are all examples of globalization.” – Britannica As with many business terms there are new words to define previously used terms. I think that “globalization” used to be called “multi-national enterprise”. This makes the new MBA more valuable than my old one.