Mexico’s Midterm Elections Matter to the United States
June 2, 2021
On June 6, Mexico will hold the biggest elections in the country’s history, both in terms of the number of seats at stake and the potential political redistribution of power. Since 2019, Mexico has been governed by President Andrés Manuel López Obrador (AMLO) and his Morena Party. There is much on the table in this grand exercise of Mexican democracy, which encompasses elections for the national congress, 15 governorships, 30 local legislatures, and over 1,900 municipal positions.
The country’s midterm elections are a critical juncture in AMLO’s political project, which he has deemed the “fourth transformation.” At stake is not only whether the opposition parties, paralyzed since their crushing defeat at the hands of Morena in 2019, can regain any strength, but also whether Mexican voters will make this a nationwide referendum on AMLO´s ambitious policy agenda. In short, the decision facing Mexican voters is between a continuation of the paradigm shift embodied in the fourth transformation or a return to the path that began in 1995 when Mexico embraced the notion that its fate was better intertwined with that of North America as a region.
The ramifications for the U.S.-Mexico bilateral relationship are also important. In recent weeks, AMLO has reprised the old bogeyman of U.S. interference in Mexico’s sovereignty, criticizing U.S. Agency for International Development funding for nongovernmental organizations that aim to protect press freedom and advance anti-corruption efforts. Under certain scenarios, an increasingly testy bilateral relationship could grow even more strained.
The AMLO Agenda
While Mexico under AMLO is not Hugo Chávez’s Venezuela, his election signaled a radical departure from the paradigm governing Mexico’s strategy for the last few decades. AMLO believes that Mexico took a wrong turn in the 1990s—the exact moment in which the country joined the North American Free Trade Agreement (NAFTA) alongside the United States and Canada. What followed was two decades of robust economic growth in Mexico and rising living standards, especially in the northern part of the country. Nonetheless, AMLO has described Mexico’s pursuit of open market policies and economic integration as a “neoliberal calamity.”
As part of his agenda to reverse course, AMLO has reneged on contracts and increased the state’s role in Mexico’s economy. His main point of reference is a historical period in which the Mexican economy was less connected to global markets and more inward looking, where the state was the principal player in the economy. Most dramatically, AMLO pulled the plug on the country’s new international airport, which would have improved Mexico’s global connectivity by handling four times as many passengers and tripling cargo volume. The consequences for Mexico are dire. In order to benefit from growing calls for nearshoring supply chains, the country needs to “improve—significantly—its logistics infrastructure (i.e., airports),” according to a leading Mexican economist. It takes just one week and under $2,000 to ship a 40-foot container from Mexico to the United States, compared to five weeks and over $4,000 from China. Yet leveraging this opportunity necessitates transportation links and logistics networks.
AMLO’s economic agenda has suffered from highly parochial interests and the pursuit of pet projects at the expense of sounder macroeconomic policy. For instance, he has forged ahead on an $8 billion oil refinery in his home state of Tabasco—despite global trends toward the use of cleaner energy sources. The refinery project is viewed with such skepticism by international investors that Chinese state financing was the only major financial source willing to invest. Considered economically unviable, AMLO’s goal with the Dos Bocas Refinery is to contribute to “energy sovereignty” by sidestepping Texas as the main refiner of Mexican heavy crude and reducing reliance on imports of gasoline and diesel from the United States. (In 2019, the United States exported $34 billion of energy products to Mexico, mainly petroleum products and natural gas, while Mexico exported $13 billion of mostly crude oil.) All of this, despite the fact that “it is cheaper for Mexico to import the products it needs from the United States,” according to CSIS’s Ben Cahill.
Indeed, one of the most disruptive policies to North American economic competitiveness and for U.S. companies looking to nearshore is AMLO’s push to unwind landmark energy reforms that opened Mexico’s energy sector to foreign investment. Harkening back to an earlier period of statist control, the ultimate goal of AMLO’s pursuit of “energy sovereignty” is to restore the former monopoly held by Petróleos Mexicanos (PEMEX), the state energy company, and prioritize the national utility company over private participants that have invested billions in Mexico’s energy sector. The overall thrust of AMLO’s energy plan is carbon intensive at a time when the Biden administration has made climate change the centerpiece of its outreach to Latin America and the Caribbean. AMLO even began his speech at the recent White House climate summit with news of recent oil discoveries in Mexico.
Mexico’s Economic Performance under AMLO
Contrary to the expectations of many analysts, AMLO has been a fiscally conservative leader—to the point of occasionally weaponizing his austerity. For instance, he went against the advice of most economists and tightened Mexico’s belt during the coronavirus pandemic. In Latin America and the Caribbean, no country except the Bahamas has spent a smaller percentage of GDP than Mexico to support families and businesses during the pandemic. The void left by the government’s lackluster response has witnessed Mexico’s criminal organizations step in to deliver relief packages across Mexico.
Fiscal austerity has buffeted Mexico’s economy, already in recession before the pandemic, into an 8.5 percent contraction—the harshest since the 1930s—and shuttered more than 1 million small and medium-sized businesses. Internal consumption has tumbled, and more than 70 million Mexicans now live below the poverty line, an increase of 10 million from 2018.
The IMF estimates that Mexico’s economy will not recover to pre-pandemic levels until at least 2022. This, despite the tailwinds coming from the United States, which absorbs around 80 percent of Mexico’s exports. The power of the U.S. economy is such that Mexico’s government recently revised its 2021 growth forecast upward to 5.0-5.5 percent, and Finance Minister Arturo Herrera said the U.S. stimulus plan was “very important” to the country. Remittances sent by Mexican nationals living in the United States reached their highest-ever levels since 1995, serving as a critical lifeline for low-income families.
Given these macroeconomic indicators, it should come as no surprise that Mexico has lost some of its luster with international investors. Indeed, some of the laws passed by AMLO’s Morena party, which controls the national legislature, are in breach of the new United States-Mexico-Canada Agreement (USMCA), which was intended to provide further economic certainty for investors. In 2020, private investment accounted for just 18.6 percent of nominal GDP, the lowest since 1994, the year Mexico entered NAFTA. Domestic capital has flown, and foreign direct investment reached its lowest levels since 2012. For the second consecutive year, Mexico failed to register in the top 25 most attractive countries in the world for foreign investment.
Under these circumstances, Mexican emigration to the United States, which had been net neutral for the past decade, has spiked in the last few months. “Given the economic disaster in Mexico, given the lack of jobs . . . many Mexicans who in recent years were happy to stay in Mexico, get their jobs and live in Mexico, are now again looking to go to the United States,” explained former ambassador Andrés Rozental. In the month of February, 4 out of 10 migrants apprehended at the southwestern border were Mexican nationals.
Concentration of Power
In his first two years in office, AMLO has displayed a tendency to concentrate power in the office of the presidency. Today, Morena has a qualified majority in congress and the power to change the country’s constitution. Often, AMLO significantly influences how funds are allocated in an attempt to reward loyalists and punish detractors. In this environment, the country has suffered a diminution in the quality of its civil service. AMLO has tested the independence of Mexico’s institutions by intervening in the Supreme Court to extend the chief justice’s term by two years, criticizing the National Electoral Institute, questioning the necessity of the freedom of information institute, and pressuring large companies in a tax evasion crackdown. In a letter published in October 2020, the American Bar Association expressed its concern for the use of intimidation and extra-legal maneuvers in Mexico’s crackdown. A resounding victory for Morena could lead to further consolidation of presidential power and an erosion of checks and balances.
In an election marred by violence—including the assassination of over 40 political officials or candidates since February—security is another area for policy focus. Cartels remain a major challenge for Mexico and have effective control over large swaths of territory. Former U.S. ambassador Christopher Landau estimates that criminal groups control around 35-40 percent of Mexico’s territory. The U.S. Drug Enforcement Administration’s (DEA) 2020 Threat Assessment identifies Mexican cartels as the greatest criminal threat to the United States, increasingly responsible for supplying deadly fentanyl. And Mexico’s cartels successfully diversified their revenue streams long ago, deriving most of their revenue from other crimes, such as kidnapping, extortion, money laundering, human trafficking, and illegal logging, among others. Certain areas of Mexico are impenetrable even to large multinational companies such as Coca Cola, which is forced to pay for protection and hand over products for distribution by cartels.
Meanwhile, Mexico’s homicides have reached all-time highs, with over 35,000 in 2019. AMLO’s early attempts at security sector reform, such as the formation of a new National Guard, were overtaken by the need to control migratory flows from Central America. The Mexican Army later resumed its role as the primary institution fighting organized crime and thus the main guarantor of public security in the country. In October 2020, DEA authorities arrested former minister of defense Salvador Cienfuegos while on holiday in the United States, accusing him of collaborating with the shadowy H-2 Cartel. In an unprecedented move, the United States extradited Cienfuegos to Mexico, where a highly perfunctory investigation found insufficient evidence to prosecute him. In contravention of mutual judicial assistance treaties, AMLO’s government publicly released more than 700 pages of carefully compiled evidence by the DEA, accused the United States of “fabricating” evidence against Cienfuegos, and proceeded to pass a law circumscribing DEA operations against drug cartels on Mexican territory.
Under AMLO, the Army has accreted power and become an important kingmaker. It is now charged with building public works, managing ports of entry, controlling migration flows, and building bank branches, among other activities traditionally handled by civilian agencies. The Cienfuegos case is emblematic of a particular danger—i.e., that the Mexican Army is attaining an untouchable status, subject to a significant blind spot in AMLO’s anti-corruption campaign.
Impact on the United States
Mexico is one of the United States’ most important partners, and from the start of the AMLO administration his government’s actions have impacted a range of U.S. interests, from billions in investments to migration flows, bilateral security cooperation, and the competitiveness of North American supply chains. Mexico’s unpredictable policy environment also affects U.S. corporate strategy, as many companies seek alternatives to extricate their supply chains from China and nearshore to Latin America and the Caribbean.
If the Morena Party maintains its qualified majority in the upcoming midterm elections, the Rio Grande dividing the United States and Mexico may become as deep as it is wide. Should AMLO’s agenda be affirmed at the ballot box, he may see cause to expand his power greatly. He would likely continue rupturing the paradigm of integration with the United States that held sway in Mexico for the last few decades. Selective decoupling could become a permanent feature of the bilateral relationship.
However, if the Morena Party loses seats—and the governing party normally suffers losses in midterm elections—AMLO will likely move to recapture the narrative and stymie any suggestion that the election results somehow represent a mandate for a new direction. He may even throw Mexico’s electoral landscape into chaos by asserting the existence of electoral fraud. Any effort to double down on the “fourth transformation” platform and bulletproof his legacy would have to contend with a greater number of power centers, newly confirmed by an electoral mandate. This reality could force AMLO to do something he did not have to during his first two years in office: seek some sort of accommodation with opposition parties and political institutions meant to serve as checks on his power. Political compromise would likely halt AMLO’s centralization of power and put a damper on the paradigm shift in U.S.-Mexico relations heralded by his presidency. This scenario could be a welcome sign for the Biden administration, U.S. companies, and international investors alike.
Mariana Campero is a senior associate (non-resident) with the Americas Program at the Center for Strategic and International Studies (CSIS). Ryan C. Berg is senior fellow with the CSIS Americas Program.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).© 2021 by the Center for Strategic and International Studies. All rights reserved.