Understanding the Concept of Import Substitution
The term “import substitution” evokes mixed feelings in Mexico. On one hand, it recalls the period when the country industrialized, thanks to a robust domestic market and post-war circumstances. On the other hand, it reminds people of a closed economy with limited consumer choices beyond Canadian shoes or makeshift alternatives. Some associate it with the 1980s crisis, though in reality, the import substitution model failed due to its inability to adapt to the global crisis of the 1980s, the wave of liberalization, and the lack of innovation, technology generation, or specialization within industries.
However, many companies that perished due to the excessive opening policies of the 1980s and 1990s were, in fact, viable and competitive with gradual opening processes, certain levels of protection, and adequate financing conditions.
Post-Import Substitution Era: The North American Trade Agreement
Following the North American trade agreement, a new industrialization process oriented towards exports took place, primarily focused on assembly. This led to the development of industrial capacity, highly skilled labor, and even complex manufacturing in sectors like automotive, aerospace, home appliances, and medical devices.
Despite our success as an exporting nation, the impact of the external sector on growth was limited due to low national content in exports and China’s full entry into global trade at the turn of the century.
Current Challenges and Opportunities
Today, we face new circumstances. We are redefining trade rules with our primary commercial partners, eventually securing tariff advantages over others. However, we live in uncertain times.
We also grapple with imports from Asian countries without trade agreements, such as China. This imbalance has cost tens of thousands of jobs in sectors like textiles and footwear, where Mexico remains competitive.
We cannot abandon these industries due to their employment impact and productive linkage. In such cases, tariffs serve as a tool against unfair pricing. We won’t increase national content in our products without supporting those producing the inputs we can generate.
The goal isn’t a closed economy but correcting distortions and setting conditions for viable final products and inputs we can and should produce. We must offer investment conditions, financing, and technology access for innovation to these industries.
Key Questions and Answers
- What is import substitution? It’s an economic policy aiming to replace imported goods with domestically produced ones.
- Why did the import substitution model fail in Mexico? It failed due to its inability to adapt to global crises, liberalization waves, and the lack of innovation, technology generation, or specialization within industries.
- What changes followed the import substitution era? The North American trade agreement led to a new industrialization process focused on exports, creating industrial capacity and highly skilled labor.
- What challenges does Mexico face today? Mexico faces uncertainties in redefining trade rules with partners and competition from countries without trade agreements, like China.
- How does Mexico plan to address these challenges? Mexico aims to correct distortions, support domestic input producers, and offer conditions for industries to innovate and remain competitive.
