Table of contents
2. Brief historical background of the Mexican modern economy until 1877
3. Trade policies in Mexico 1877 – 1911
4. Trade policies in Mexico in the 21st century
5. Comparison between the two periods
(Length of the paper: 14,5 full-text pages with 33.210 characters without spaces).
Mexico is a dynamic economy which has been open to trade since its first proclamation as a repub- lic in 1822 (Bamford Parkes & Gordon, 2020). Today, Mexico is the ninth-largest exporter and the fifteenth largest economy in the world (The World Bank, 2018; Simoes & Hidalgo, 2017). In the Hispano-American region, Mexico occupies the 1° place in terms of GDP, in Latin America the 2° rank and in the American continent the 3° rank, only after the United States and Brazil (The World Bank, 2018). Mexico became extraordinarily manufacture-oriented after the signing of the North American Free Trade Agreement in 1994 and the first emerging economy which signed a free trade agreement with an advanced economy (Buckman, 2005, p. 125). Therefore, this paper attempts to evaluate how the Mexican economy went through this globalization process by comparing its trade policies in the periods between 1877-1910 and the 21st century.
In economic history, the period right before World War I, which is frequently known as the first wave of globalization, is the time when most of the developed economies went through a trade liberalization process (Straw & Glennie, 2012). On the one hand, this fact makes it interesting to look at Mexico during the Porfiriato (1877-1911), since the country was also experiencing a pro- found reformation of its economy after 300 years of colonialization history and decades of turbu- lences after independence. During recent years, principally after the global financial crisis in 2007- 2008 on the other hand, the voices of trade protectionism became lauder, especially considering the use of tariffs as a political sanction of the current President of the United States, Donald Trump (Kommerskollegium, 2016, p. 2; Bundesverband der Deutschen Industrie, 2020). Therefore, this paper aims to briefly investigate if the new “wave of protectionism” also reached Mexico.
To analyze the degree of Mexico’s global integration, this paper focuses on trade, ignoring other characteristic aspects of globalization for example migration and free capital mobility. Specifically, three aspects of international trade will be taken as indicators of openness regarding globalization: Trade strategy, tariff level and openness ratio. Finally, the main research questions that this paper poses are the following: Can Mexico be seen as a more globalized country today when we compare its trade policies in the period between 1877 and 1911 and the 21st century? Or did Mexico fall under the recent “wave of protectionism”?
2. Brief historical background of the Mexican modern economy until 1877
All over Latin America, the Colonization period of the Spanish and the Portuguese crown left common cultural and economic patterns. Spain and Portugal were almost non-industrializing colo- nial powers (Cardoso & Helwege, 1995, p. 5 et seq.). According to Russell (1977), the textile industry was one of the few industries which were already developed in Mexico during the Colonia. The economic activities during the last decades of the Colonia were still subjected to artisanal production, mostly subsistence agriculture and in few cases, farmers were just able to satisfy the demand of small local communities selling at local markets. Due to the geographical difficulties of the territory and the deficient road system, the larger production and consumption regions were inevitably separated from each other (Rosenzweig, 1988, p. 152). Thus, the means for modern trade at that time were limited to Mexico. By 1800 still under Spanish rule, Mexico was supposed to own merely rudimentary manufacturing structures: tanning, rough wools and no cotton at all, since eve- rything else was expected to be produced only in factories of the Iberian Peninsula (Thomson, 1989, p. 59). Prohibition of industries, which could compete with Spanish production and limitation to internal trade within Latin America and with other European countries besides Spain, were com- mon practices. As Cardoso and Helwege (1995) argue, these measures hindered them from taking advantage of regional differences and limited market access for the former colonies. In words of Russell (1977) "Mexico was forced to rely on Spain for many products since such activities as winemaking, silk production, and most manufacturing were prohibited. Finally, rather than trying to develop Mexico's tremendous agricultural potential, men and resources were channelled into mining". When the second industrial revolution took off in Europe, the Mexican economy, as the rest of the Latin American countries, remain in the periphery. These "new-born" economies had neither any strong industrial base nor secure trading partners directly after their independence dur- ing the first half of the nineteenth century (Cardoso & Helwege, 1995, p. 5 et seq.).
The independence movement and with them the war of independence started in 1810 with the famous “Grito de los Dolores”1 of Hidalgo. Finally, in 1822 Mexico was declared an independent Nation and with them, the Mexican colonial system came to an end (Bernstein & Bamford Parkes, 2020). Once the country was liberated from the obligations to the Spanish crown, the British influ- ence started to show its strength. As a logical step, Mexico envisaged diplomatic recognition from the world's leading countries right after independence, expecting to obtain a role in the world econ- omy. Britain was the first country to grant loans to Mexico in exchange for recognition. The country was forced to make commercial concessions and accept loans at unfavourable terms. Since Britain was the main promoter of free trade at that time and opposed protectionism in form of tariffs, the Mexican commercial concessions were highly damaging for the domestic textile industry (Russell, 1977, p. 59). Russell (1977) describes this process as a “self-perpetuating system of underdevelop- ment and foreign domination”.
One of the main aspects of the bourbon reforms in the 18th century was trade liberalization includ- ing direct trade ties with allies and neutral partners during the napoleon period in France. In this historical context, Mexico became independent. the nation opened to the commerce of the world. Besides, the country repealed laws that were used to restrict foreign immigration and other laws restricting the import of foreign capital which were implemented during the colonial regime (Coatsworth, 1989, pp. 27-28). So, the “new-born” Nation started eliminating all barriers to mod- ern capitalism, avoiding all traditional colonial institutional frameworks.
The period between 1867 and 1876, immediately before the Porfiriato2 is known in the literature as “La República Restaurada”. The most representative name of this period was the liberal Benito Juárez, who reached the presidency in 1860 after winning the reform war between conservatives and liberals. Nevertheless, Mexico was virtually converted into a French colony from 1861 to 1867, with Napoleon III naming Maximilian, from the Hapsburg noble house, emperor of Mexico (Bernstein & Bamford Parkes, 2020). In 1867 Benito Juárez reassumes power, marking the begin- ning of a century of economic development (Russell, 1977, p. 60 et seq.).
As Coatsworth (1989) points out, although Mexico´s GDP declined overtime during the nineteenth century (from 1780 until around 1880), the Mexican economic relations with the rest of the ad- vanced economies at that time were intensified, in spite of violent fluctuations after independence. Also, the author concludes that Mexico's foreign trade decreased slower than its GDP per capita after 1800. Thanks to the data collected by Coatsworth (1989), it became possible to observe that the total foreign trade of the country, measured as a share of GDP, increased from 8.1% in the year 1800 to 12.3 % in 1845 and then decreased to 9.8% in 1860. But in the period after 1860 when Benito Juárez started his economic reforms, the external sector became far more important than at any point in the previous history. Therefore, it can be derived that foreign trade was important to Mexico even before the restoration of the republic in 1867 and before the following political period under Porfirio Díaz (Coatsworth, 1989, p. 38 et seqq.).
3. Trade policies in Mexico 1877 – 1911
The period between 1860 and the first World War is known as the first wave of globalization. During this period the worldwide trade flows increased rapidly while the international capital flows were also relatively free. The first wave of globalization represented an expansion in terms of in- ternational integration and liberalization policies after a period markedly characterized by protec- tionist trade policies. The leading economy at that time was Great Britain with periods of rapid growth since the country could exploit the manufacturing and transportation technology developed during the industrial revolution. One of the fundamental steps taken for free trade within Europe was the free trade pact within Great Britain and France in 1860. Calculated over the entire 19th century the trade flows within Europeans countries boosted by a growth rate of 40%. But the first globalization wave was not only a European phenomenon. North America was also strongly af- fected by this wave of internationalization (Johnson, n.d.). Simultaneously, the gold standard sys- tem also turned trade patterns more predictable, making exchange rates less volatile and thus ben- efiting trade flows especially between Europe and the United States. However, the process of trade liberalization appears to be less widespread than assumed and principally restricted to Europe (Straw & Glennie, 2012, p. 28 et seq.). Following this argument, the authors Bairoch and Konzul- Wright (1996) argue that protectionist measures, for example, high tariffs levels were still a com- mon practice in the technologically more developed European countries to protect infant industries as agriculture. Nevertheless, did this first wave of globalization reach Mexico?
Throughout all Latin American countries, liberalism was strongly related to increased exports (Russell, 1977). The period between 1870 and 1911 is historically known as the “Latin America Golden Age”, a time characterized by political stability, economic growth and stable trade partners since no major conflicts took place neither in Europe nor in Latin America3. Although the exports of the main Latin American economies were primarily based, modest industrialization began to develop (Cardoso & Helwege, 1995, p. 40 et seqq.).
In Mexico, José de la Cruz Porfirio Díaz Mori assumes the presidency in 1876. Thanks to juridical changes in property rights implemented by his governmental administration and the reconstruction of diplomatic relations4 with England, France and Germany, the investment environment was markedly improved. Paving the way for foreign direct investment (FDI) was one priority task of the government headed by Díaz, which rightly responded to local needs at the time. FDI gave a powerful impetus to the growth of the domestic market. Growth was accelerated through the ex- pansion of the mining and agricultural sectors and of the communication networks thanks to new road systems and, most importantly, the railway (Gil & Manuel, 2013). In the early years of the Porfiriato, around 1884, foreign investments in Mexico amounted to only about 110 million pesos. In the last year of his ninth presidency in 1911, the amount of FDI reached 3,400 million pesos. By this time 62% of the total FDI was from European countries and 38% from the United States (Rosenzweig, 1988, p. 173).
On the one hand, thanks to the construction of the railway, products were more easily and cheaply transported to the harbours. Therefore, this was a key aspect of the expansion of the commerciali- zation of Mexican products. The railway systems were designed to reach from the centre of the country to the harbours, especially the harbours of the Gulf of Mexico, and to borders, especially to the northern borders, intensifying the commerce with the United States. At the beginning of the Porfiriato, Mexico counted only seven hundred kilometres of railway tracks, connecting Veracruz and Mexico City, increasing to six thousand in 1885, ten thousand in 1890, fourteen thousand in 1900 and to twenty thousand in 1910 (Rosenzweig, 1988, p. 158).
On the other hand, the mining industry became one of the main sources of income of the Mexican economy. The industry was modernized, improving the productivity and changing old production structures which were inherited from colonial times (Rosenzweig, 1988, p. 160). In those days, industrial minerals were the core of the industry since the more advanced economies developed a strong demand for copper, lead, iron, and coal for their manufacturing industry (Rankine, 1992).
Trade with the United States of America and Europe was additionally incentivized due to the de- velopment of the domestic economy, the expansion of the transportation system and the reduction of the transport costs. In this sense, it is possible to affirm that Mexico followed the marked liberal period at that point in history. El Porfiriato inserted Mexico in the international economy with a trade model focused on the export of primary goods and agricultural goods. Additionally, the in- creasing Mexican domestic demand for importing consumer goods from the United States was another important element that changed the trade patterns under Porfirio Díaz (López Arnaut, 2017, p. 84).
To analyze the degree of globalization that Mexico had during the Porfiriato, this paper will focus on three main elements of trade policies: trade strategy, tariff levels and openness ratio. In this paper "trade strategy" refers to the overall geographical focus that a specific government assigns to its trade ties. This means, that it will be evaluated whether Mexico's trade policy was more focused on multilateralism or regionalism.
Díaz supported an outward-looking economic strategy. The main trade partners were the United States of America and European countries like England and France. At the same time, these leading economies were the main investors for the railway and other infrastructural projects in Mexico. In 1885 Mexico signed a “Treaty of Friendship, Trade and Navigation” with the United Kingdom of Sweden and Norway (Quintana Adriano, 2015, p. 296). Similar treaties were also signed with France in 1886, 1888 with Ecuador, Great Britain and Japan, 1890 with the Dominican Republic and Italy, 1893 with el Salvador, 1895 with Belgium, 1897 with the Netherlands, 1899 with China, 1901 with the Austria-Hungary Empire and 1902 with Persia (Veliz Lizarraga, 1953, p. 67). From this fact, it is recognizable that the international relations of Mexico at that time were at a favour- able stage.
Before the development of communication channels, especially railways, the main direction of Mexican foreign trade was towards European countries. But during the last decade of the nineteenth century, more than 70% of exports and 60% of imports were related to the United States. The United States replaced England as the main market and main seller during Porfirian Mexico, which can be seen in Appendix A of this paper. After the Civil War in the United States, Mexico was principally able to import more manufactured goods from the USA. The second most important trading partner at that time was England, followed by Germany, France and Japan. But the com- merce with all other countries was almost insignificant in comparison with the commerce with the main neighbour (Veliz Lizarraga, 1953, p. 67). Veliz Lizarraga (1953) additionally argues that the United States was the main importer of Mexican agricultural products around the decade of 1870 but by 1880, they turned to be the main seller of manufactured good for Mexico.
The next element which will be analyzed as an indicator of globalization are tariff5 levels. During the first years of the regime of Díaz, the President tried to adapt to the laissez-faire strategy of the biggest economies at that time. Definitive elimination of old colonial practices, for example, inter- regional taxes, the alcabalas 6 and the reduction of tariffs was on the agenda, to promote moderni- zation (Weiner, 2000).
Although many authors, as López Arnaut (2017), describe the Porfirian regime as being liberal, his administration faced a lack of resources that hindered it from fully eliminating tariffs to trade. A complete liberalization in terms of tariffs was difficult at the beginning of the regime since the Mexican government was inefficient in enforcing tax payments inside the country. This way, broader trade liberalization had to be postponed until alternative sources for fiscal revenues were developed. Officials in the regime were aware of these constraints and therefore chose to have a less direct path toward trade liberalization (Flores Quiroga, 2004, p. 343 et seq.).
Kuntz Fisher (2004) explains the Porfirian trade liberalization process describing three main stages. For the first one (1872-1880s) the government focused its forces to reduce illegal activities in com- merce and inefficient custom administrations. The government decided to establish a uniform ad valorem duty to a wider range of goods, by law. This was 55% of the market value of the products. Although some duties were reduced throughout the regime, the protection continued to be high. In the second stage (the 1880s) a reversal in the tariff's reduction took place since the government needed it for fiscal revenues and because of higher foreign competition. In the third stage (the 1890s) a broader liberalization was possible thanks to new aspects that helped to increase govern- mental revenues. The three main reasons were higher foreign investments, diversified sources of capital inflows and reformed customs administrations, which worked more efficiently (Kuntz Fisher, 2004).
In Appendix B of this paper, it can be seen how essential the tariffs were in terms of the total governmental revenues of the country. In 1872 foreign taxes accounted for 58.7% of the total in- come of the government. By 1910 they dropped to 46.6% and by 1913 to 43.4%. The decrease was not impressive but at the same time, it can be recognized that the government compensated this reduction augmenting other internal taxes7 (Uhthoff López, 2005). Especially the reduction of tar- iffs for primary, intermediate and capital goods were more significant. The administration of Porfirio Díaz tried to differentiate tariffs of input products with lower tariffs contrasting it with higher import tariffs for manufactured and end products as the authors Uhthoff-López (2005) and Gómez-Galvarriato (2003) affirm. Although the three stages described by Kuntz Fisher (2004) cannot be easily recognized in the data from Appendix B exactly as he describes it, the “liberaliza- tion reversal” can be seen to some extent in the years between 1884 and 1889.
Considering the tariffs structure of Mexico during the last decades of the 19th century, Mexico was among the most protectionist countries in the world (Quintana Adriano, 2015, p. 276). Quintana Adriano (2015) argues that thanks to this protectionist measure the country was able to promote the substitution of imports in some sectors for consumer products to some extent. The author Veliz Lizarraga (1953) does not sustain this argument since he argues that the differentiated tariffs did not promote industrialization in Mexico since their main purpose was to increase governmental resources and not to help the domestic industry. This position is also sustained by Kuntz Fisher (2004), since she argues that political liberalism during the Porfiriato did not imply economic lib- eralization, at least in terms of international trade. The author supports the idea that commercial duties could not have been reduced radically, at least during the first decade of Díaz’s administra- tion because this could have compromised the fiscal health of the government.
In what follows, it seems logical that the openness ratio during the Porfiriato rose. Coatsworth (1989) argues that Mexico became more dependent on foreign trade during the Porfiriato since the external sector became far more important than ever before. While trade counted by around 10% of the total GDP during the 1870s, in 1911 it amounted to 30%. Just as in the previous discussion about the importance of the fiscal revenues through commercial activities, this author also sustains that exactly that aspect is seen by him as a reason why the openness ratio increased so quickly during the Porfirian administration. Consequently, the openness ratio at the end of the Porfiriato was the highest in the economic history of Mexico until then as can be seen in Appendix C.
1 Denomination for the first battle cry for the independence war. It was first expressed by the parish priest from Dolores, Miguel Hidalgo y Costilla (Editors of Encyclopaedia Britannica, 2018)
2 Denomination of the period of the Presidency of the general and politician José de la Cruz Porfirio Díaz Mori from 1877 to 1911. This term was first coined by Daniel Cosío Villegas in his book “Modern History of Mexico. El Porfiri- ato, social life” in 1995.
3 One exception is the War of the Pacific with Peru and Bolivia fighting against Chile from 1879 to 1883 when Bolivia lost its access to the sea (Cardoso & Helwege, 1995, p. 43 et seqq.)
4 These diplomatic relations were suspended in the past because of political resentments and lack of recognition (Gil & Manuel, 2013).
5 The term tariff refers to the taxes imposed upon a good when it crosses national borders. This measure is more usually applied in the country which is importing the good (Papelasis & Smith, n.d).
6 Internal taxes that were imposed during the colonial time for goods transported from one region to another within Mexico. Numerous customs posts were installed in the country hindering internal trade and collecting high amounts of taxes (Rosenzweig, 1988, p. 153).
7, For example, the stamp tax which went from 14.1% to 31.7% of total income (Uhthoff López, 2005).
- Quote paper
- María Belén Ortíz Torres (Author), 2020, Globalization and trade policies in Mexico. Comparison of two periods 1877-1911 and the 21st century, Munich, GRIN Verlag, https://www.grin.com/document/992298