Luis Rubio
“The future is already here, wrote the novelist William Gibson; it’s just not evenly distributed.” The change that the world is experiencing is unstoppable and taking place on all fronts, some benign and others exceedingly risky. In recent weeks a series of news reports and studies have accumulated that, taken together, present an overly complex scenario (and, in many senses, contradictory) that obliges one to visualize the potential of the alterations in the panorama that has come to materialize over the most recent months.
A first approximation to the changing scenario is that which China provides. If one were to extrapolate the tendencies of the most recent years, China’s economy would exceed that of the U.S. by the decade’s end, to become the new pole of economic and, potentially, political attraction. A study presented in Visual Capitalist[I] illustrates graphically the way the world economy evolves and the changes anticipated for the leading world economies (which, in passing, reveals Mexico’s growing deterioration on the international horizon, suggesting future problems).
The study is built on direct extrapolation and does not take into account two elements that could modify these tendencies: on the one hand, there is speculation around the world concerning the veracity of China’s official statistics; on one extreme, there are those who maintain that China’s total population is sensibly lower than that previously estimated,[ii] which would lead to the possibility that, instead of growth, China is initiating an accelerated process of contraction. Of course, this would in no way change the extraordinary performance of the Chinese economy and its enormous potential, especially because of its significant advance in digital technology and artificial intelligence, which would place China at the world-leadership level in the most promising industries.
The second factor in this equation comprises the dispute over the way of governing that characterizes the U.S. and China, the former with a dysfunctional democracy, the latter with an autocratic system that has been capable of dislodging from poverty hundreds of millions of its citizens. Behind the conflict between the two powers are evidenced by the strengths and weaknesses relative to the two nations precisely when the pandemic has yet to be resolved, inflation starts to wreak havoc, and the eternal debate persists on the viability of the Chinese political system. Ian Bremmer[iii] speculates in his new book on the possibility that one of the great myths of our times (the superiority of the U.S. political system vis-a-vis the superiority of the Chinese economy) ends up being the reverse of this: that the flexibility of the U.S. economy wins while the Chinese political system proves itself more robust and sustainable.
The third element in this panorama is the growing inflation, for which none of the western nations appear to possess a convincing answer, threatening to plunge the planet into a recession with no apparent way out. The recent performance of the financial markets further adds to this scenario, above all the extent to which this political moment is particularly delicate in the U.S., with legislative elections at the end of this year. The inaction of the Biden government, its dubious priorities in economic matters, and its colossal loss of prestige sharpen the intricacy of the moment.
The panorama is acquiring complexity in all ambits, which does not augur well for a tranquil future for Mexico. In the last two years, Mexico has enjoyed an unusual situation not thanks to the government’s strategy but rather to the generosity of the U.S. government. On the one hand, our exports have multiplied thanks to the exceptional growth of the U.S. economy, creating an encouraging environment for the domestic markets; on the other hand, the cash transfers conferred by the U.S. government on its inhabitants to mitigate the harmful effects of the economic paralysis caused by the pandemic translated into a monumental growth of the remittances of Mexicans living in the U.S. to their families back home (which increased from 1% to 4% of GDP). None of these phenomena is attributable to the Mexican government: strictly speaking, the U.S. economy has been instrumental in avoiding an economic and social collapse in Mexico.
This situation should be held up in contrast with the clouds that could be approaching the world economy. For Mexico, the key factors of its economic stability are exports, interest rates in U.S. dollars, and remittances. A severe recession in the U.S. would directly threaten these three factors, inverting the panorama that has characterized the economy in recent years.
The absence of a strategy of development, the unnecessary polarization, and the alienation of the U.S. government as well as of investors desirous of diversifying themselves on confronting the conflict of the U.S. with China, now become a huge risk of recession and impoverishment, not precisely the panorama promised to Mexicans while the president was campaigning back in 2018.
[i] https://www.visualcapitalist.com/shifting-global-economic-power/
[ii] https://www.youtube.com/watch?v=vo3J0UwtGJ0
[iii] The Power of Crisis: How Three Threats – and Our Response – Will Change the World