Will Mexico Shein On?

Americans often misunderstand Mexico. Each spring, we look forward to Mexican-themed gatherings for Cinco de Mayo—never mind that Mexican Independence Day actually falls on September 16. The menus of some popular Mexican restaurant chains have items not found anywhere south of the border. And travel to Mexican beach resorts offers wonderful scenery that bears no resemblance to the landscape of most of the nation.

Economically, Mexico does not always command our attention. But that may be changing. This week, Mexico elected its first female president, Claudia Sheinbaum, who will try to carry on the strong performance engineered by her predecessor, Andrés Manuel López Obrador (AMLO). The results of that effort will have important impacts north of the border and beyond.

For decades, Mexico was beset by high inflation and currency instability. Its fortunes were yoked to the economic ups and downs of the U.S., with Mexico experiencing more severe swings than those seen in the States.

AMLO had success in changing that pattern. He agreed to limited concessions to preserve good trade relations with the United States. The nation's industrial base grew, and in 2023, Mexico overtook China as the U.S.’ largest source of imports. The peso, perennially devalued against the U.S. dollar, showed unusual strength in recent years; the currency was also supported by the Banco de Mexico's hard stance against inflation, which raised rates sooner and more quickly than was seen in advanced economies.

AMLO's agenda came at a cost. The federal deficit more than doubled during AMLO’s tenure, exceeding one trillion pesos (3.5% of gross domestic product, or GDP). The nation's ratio of national debt to GDP has doubled since 2005. Unlike the insatiable demand for debt issued by their neighbor to the north, Mexico cannot run such a fiscal imbalance indefinitely. And reforms left some important gaps: Crime remains significant, with violent crime nationwide on the rise, an impairment to foreign investment and tourism.