AMLO Proposes Unrealistic Protectionist, Nationalist Economic Policy

AMLO claims he will be the savior of the Mexican economy, but is light on specifics.

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Photo credit: Eneas on Best Running / CC BY

Leading Mexican presidential candidate Andres Manuel Lopez Obrador (AMLO) recently proposed a series of protectionist and nationalist policies in a new campaign ad, where he touched on agricultural and trade policies, economic development, and took a shot at Donald Trump’s proposed wall along the US southern border with Mexico.

AMLO, as he is commonly referred to in the press, has consistently led in polls by double-digit margins, besting centrist and center-right challengers from PAN and PRI. His new ad, with its patriotic tone and promises to remember the “heartland” so to speak, is a clear attempt to woo rural voters, many of whom live off of the land, and are concerned about the effect of Trump’s agenda on trade, migration, and agricultural policies.

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Much of Mexico’s agricultural production is exported to the United States via NAFTA, a free trade agreement signed into law by President Bill Clinton in 1994, which includes Mexico, the US, and Canada.

In a letter sent to El Financiero, AMLO clarified his position on NAFTA: “We reiterate our willingness to renegotiate the North American Free Trade Agreement, but we believe it is convenient that the signing of the new agreements be made after the July 1 elections to do so in conditions of equity, allow for the construction of consensus in our country and protect the productive sectors of Mexico.”

AMLO’s position on NAFTA has been somewhat unclear throughout his campaign’s course, hence his pitch to worried investors who fear that an anti-NAFTA Mexican president would significantly slow economic growth.

AMLO also claims in his new ad that he will, “rescue the countryside from its current state of abandonment, and we are going to produce things here in Mexico, everything that we consume.” Ironically, this type of protectionist rhetoric hearkens back to much of what Trump said on the campaign trail to persuade working-class white voters to support him.

Of course, this type of protectionism could ultimately be a disservice to consumers in both countries. NAFTA has largely been judged by economists to be an economic success for all three players, based on the time-tested principles of comparative advantage.

Simply put, it does not make sense for Mexican farmers or artisans to produce a commodity in Mexico if it can be made far more efficiently and cheaply in the United States; and vice-versa. This type of populist rhetoric may succeed in wooing rural Mexicans, but it does not make for good economic policy.

While NAFTA is generally viewed to have had a positive effect on all three participants, Mexico has not experienced the economic benefits they hoped for. GDP has grown slowly and steadily, while the expected wage growth has not materialized. Exports and foreign investment, however, have skyrocketed under the agreement.

AMLO makes the typical politician pitch with regard to wages, saying, “there are going to be good jobs and fair wages in the country. The Mexican people will be to work where they were born, near their families, where they can practice their traditions and customs. Those who go abroad will go because they want to, not because they need to.”

Again, it has been a tired saying across the political spectrum for decades, if not centuries, but light on details. How, exactly, is AMLO going to dramatically improve those stagnant wages? Latin American history shows the perils for governments of balancing unemployment and inflation. The story of Argentina, particularly, demonstrates the destructive potential of powerful public sector unions that place great strains on public resources, and lead to economic crises.

Deep down we feel that the people of Mexico were deceived with the energy reform and that we must review it

– AMLO talking about rolling back Pemex privatization

On the campaign trail, AMLO has largely avoided direct sparring with Donald Trump but appears to vacillate at times regarding his commitment to the landmark free trade pact. While he has been critical of the agreement at times and favored economic isolation, at a campaign stop in Ciudad Juarez, just across the border from the United States, he called for an extended free-trade zone and pledged to slash the unpopular value-added tax, or IVA, from 16% to 8%.

But like his Colombian counterpart Gustavo Petro, AMLO appears to pitch economic proposals that are not rooted in reality. While he pledges to cut taxes, to thunderous populist applause, he also promises to double pensions for seniors, pay farmers guaranteed prices for their goods, make massive new investments in education and telecommunications, and double the minimum wage in his proposed free-trade zone.

Just as Petro raised eyebrows by pledging to do away with Colombia’s oil and mining industries, it is hard to see how AMLO could possibly dramatically slash taxes, while also drastically increasing spending on a whole host of federal outlays. It is classic populist fare, targeted to an audience that is wary of Trump’s pronouncements on accepting Mexican imports into the American market.

In response to such criticisms of his populist policies, AMLO recently released a communique in El Financiero, in which he called on the business community to confide in him, promised austerity, fiscal responsibility, and central bank independence, pledging, “we will be respectful of the autonomy of the Bank of Mexico; we will not spend more than what enters the treasury, that is, we will operate the public administration without deficit.”

It certainly sounds reassuring to Mexican investors, but it still fails to account for how he is going to pay for all of his new spendings, with already strained federal budgets.

And like all populists, AMLO has much to say that is music to working-class voters’ ears, but little to say about considerable inflation, that reached 6.69% in 2017, and would only worsen if AMLO unleashes profound new government spending, as promised.

Finally, AMLO seeks to capitalize on the anti-Trump sentiment in Mexico, dismissing the idea of a border barrier: “We are not going to worry about the threats of building a wall. Mexico is going to be a great power again with economic development and well-being.”

Ironically, it almost hearkens back to the traditional Trump campaign speeches and slogans. However, Trump, despite all his detractors, has at least righted the American economy for now. AMLO’s brand of populism appears unlikely to do so. Like all populists, he is big on rhetoric, and light on details.

 

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