World-System (1970-2100) Eight Futures for Mexico

 

The Trump II administration has threatened a Trade War with Mexico and the imposition of tariffs has been delayed while negotiations proceed (here). Canada, Mexico, China and the EU are the US's largest trading partners. Trump has threatened tariffs on all four if his demands on immigration and drug trafficking are not met. The common assumption is that the US "Gorilla" will impose it's will on other nations in the world and will get what it wants. But a World Economic Order where the US imposes it's hegemony on the rest of the World-System is not the only option and it may not be the best for any particular country.

In this post, I will create future paths for the development of Mexico based on different assumptions about possible Geopolitical Alignments. First, there is some history here between Mexico and the two Trump Administrations. In 1994, the US signed the North American Free Trade Agreement (NAFTA), but the impetus for free trade started in the Reagan Administration and is a central assumption of Neoliberalism. In 2017, with the start of the Trump I Administration, NAFTA was renegotiated into the United States-Mexico-Canada Agreement (Trump thought NAFTA was a "bad deal"). Now, in the Trump II Administration, the United States-Mexico-Canada Agreement (that Trump negotiated in 2017) is itself a "bad deal" and Trump thinks that the US is being treated very "unfairly". In the future, trading partners might no longer want to deal with the US and a US Republican party that can't decide whether Neoliberal free trade is a good or bad thing.

Currently, Mexico has an important role to play in the Globalization of its trading partners (CN, CA and US) but does not exert much control over the system (here). Future Geopolitical alignments, to include giving up on the World-System, might be one of the the following (presented visually in the time plot at the beginning of this post):  

• BAU [119.6 < AIC = 124 < 128] The Business as Usual (BAU) model is not a bad option (you can experiment with it here--see the bootstrap confidences intervals for coefficients below). It would essentially involve Isolationism and would insulate Mexico from US bullying tactics.
  
  
• LAC [73.36 < AIC = 131.5 < 170.1] The Latin American Regional (LAC) Alignment would direct Mexico to trade with it's Latin American Neighbors. It would not mean isolation from the World-System but rather Latin American Integration or a confederation of Latin American countries that would interface with the World-System (an unrealized idea that goes back to the 19th Century). In the MXL20 model, it would result in a steady-state after 2040.
  
  
• RW [38.14 < AIC = 48.06 < 57.18] The Random Walk (RW) model would open Mexico up to all types of shocks from the World-System, with Mexico becoming a Small Country, possibly dominated by some other World hegemonic leader. In the short-run (year-to-year) it is not a bad description of 20th Century Mexican history as one damned thing after another.
  
  
• W [69.96 < AIC = 91.55 < 104.3] Hierarchy Theory would argue that linking Mexico to the World System would be the best way to control growth, environmental problems and unemployment (see the Measurement Matrix below for the MX1, MX2 and MX3 state variable components). For Mexico, such a linkage would mean Degrowth after 2040.
  
  
• US [104.7 < AIC = 112.8 < 119.5] Hegemony Theory would suggest that linking to the Hegemonic World Leader (the US, in this case) would be the best strategy for a Semi-peripheral country such as Mexico. The US and Mexico have been strengthening ties (off and on) over the last three decades, but the Trump Administrations seem intent on severing the relationship. For Mexico, Hegemonic linkage would also mean Degrowth after 2040.
  
  
• CN [103.2 < AIC = 116.5 < 129.1] Mexico has also had a history of strengthening relations with China. If the US cuts Mexico free, China may well move into the Geopolitical vacuum. Of the choices uncovered by the MXL20 model, linking with China would be the worst and would lead to almost immediate collapse. The reason is the predicted collapse of the CN21 Model (to be covered in a future post).
  
  
• TECH1 Productivity [63.11 < AIC = 102.8 < 135.3] Mexico could also choose to improve the technological advancement of their economy. One aspect of Technological change is productivity (output per worker, output per energy input, etc.). Although an attractive alternative suggested by Economic Growth Theory, it would be equivalent to a steady-state in Mexico (see LAC above). 
  
  
• TECH2 Efficiency [81.42 < AIC = 130.8 < 160.6] Another aspect of Technological change is efficiency, for example, decreasing energy use per unit of GDP. In Mexico, increases in Economic Efficiency would not be much better than a Random Walk (RW).

As with the IPCC Emission Scenarios the Geopolitical options for Mexico are not forecasts. The future is unknowable. Using different inputs to the MXL20 model, alternate futures can be extrapolated. We will have to wait to see what direction Mexico actually choses, but shocks from the Trump II administration may push the country into making choices.

Notes

MX1 is the dominant state variable of the MXL20 system with data taken from the World Development Indicators (WDI). The methodology used to create forecasts is similar to the one used by the Atlanta Federal Reserves GDPNow app but produces growth scenarios similar to the IPCC Emission Scenarios. Prediction intervals are generated using a Bootstrap algorithm in the R programming language. The AIC can be used to evaluate the quality of models but does not determine which model provides the best forecast. An explanation of Dynamic Component Models (DCMs) can be found here.

The MX1 state variable was created from the following weighted indicators (the first row of the Measurement Matrix) and explain 98% of the variation. 

The first six indicators in standard scores are taken from the World Development Indicators (WDI). KOF = KOF Index of Globalization, EF = Ecological Footprint, HDI = Human Development Index. The second two components: MX2=(0.892 EF- 0.34 LU - 0.22 HDI) and MX3 = (0.847 LU - 0.305 GDP) describe Environmental and Unemployment Error Correction Controllers (ECCs).

You can run the MXL20-BAU model here. The bootstrap confidence intervals for coefficients are:

You can change parameters in the System Matrix (F) in the MXL20 BAU model to any number you want, but the ranges presented above would not be too extreme and would have reasonable probability values.

IPCC Emission Scenarios

Most of the IPCC Scenarios seem to produce a steady state around 2100 (after controlled growth or Degrowth) but there are some outlier scenarios that seem to grow forever. Te MXL20 BAU model is stable and would eventually also reach a steady state (well after 2100).