Understanding the Shift in Economic Landscape
In a recent class on economic competition, we discussed how rivalry among businesses leads to lower prices and greater product variety. A student then inquired about reconciling this effect with tariffs, which initially increase product costs. This question led to a personal recollection and an unexpected discovery: the term “fayuca,” commonly used by my generation, is virtually unknown to today’s youth.
A Glimpse into the Past
Four decades ago, when I was the age of my students, purchasing a pair of sneakers was a challenging endeavor. The selection was limited, quality varied, and international brands arrived sporadically in Mexico. A restrictive regulatory structure limited the availability of consumer goods, making unimported products sold as “fayuca” through informal markets like tianguis or bazaars.
Generational Divide and Economic Transformation
When I shared this story in class, my students were surprised. The country I described bears little resemblance to the one they know, highlighting the profound economic change Mexico has experienced in recent decades.
The Role of Tariffs and Their Impact
Why are tariffs said to “protect” domestic industries? In simple terms, raising the price of imported goods provides a buffer for local producers. This margin reduces competitive pressure, allowing for price adjustments or maintaining less efficient structures without losing market share. However, this mechanism comes at a cost: reduced variety, fewer innovation incentives, and higher prices for consumers.
This was the economy that shaped consumption during much of the 20th century: a closed country with limited options and an uncompetitive productive apparatus. Fayuca functioned as a safety valve, an imperfect response to the scarcity of alternatives in the formal market.
The Transformation Through Open Trade
This landscape changed with the opening of trade. The reduction of tariffs, elimination of permits, and liberalization of commerce created a more dynamic market environment. Stores became filled with previously inaccessible products, variety increased, and prices dropped, reflecting more intense competition.
Lessons from History and Future Considerations
As in any economy, trade policies are periodically reviewed, and sector-specific supports are designed. This process is legitimate and sometimes necessary to facilitate technological transitions, strengthen value chains, or address external disruptions. However, historical experience underscores the importance of maintaining balance: production incentives must coexist with a competitive market environment that keeps consumer options open.
From Fayuca to Open Markets
My students do not use the term “fayuca.” I hope they never need to. The fact that we can now do without this term signifies a profound transformation: more open markets, greater access to goods, and a competitive scenario that expands consumer choices.
Key Questions and Answers
- What is fayuca? Fayuca refers to the informal sale of goods, often imported illegally, in markets like tianguis or bazaars during times of restricted trade in Mexico.
- Why were tariffs considered protective? Tariffs raised the price of imported goods, providing local producers with a buffer against competitive pressure.
- How did open trade change things? Trade liberalization led to more product variety, lower prices, and increased competition.
- What lessons can be learned from this history? Balancing production incentives with a competitive market environment is crucial for consumer welfare.
