Recently, we heard the new Federal Secretary of Economy mention that he would support the United States in its trade war with China, which very likely implies not granting tariff preferences in Mexico for raw materials of Chinese origin. While this supports the USMCA, it also readjusts the conditions for companies’ development within the country and, in turn, the penetration they will have in other geographies.
We are probably familiar with the “7 Magnificent,” a term referring to the most important companies in the United States: Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla. These companies will continue to be pillars of development, and the market acceptance they enjoy goes beyond what we see in our country and region. The return on the stocks of these seven companies ranges between 50% and 92% annually, something unprecedented, only seen a few times with giants like Kodak, IBM, GE, and others.
In 2023, the companies that make up the “7 Magnificent” generated average combined returns of 75.71%, with Nvidia being the highest at 238.87% and Apple the lowest at 48.18%. However, the S&P500 index had an average of 24.23% in the same year. If we add that approximately 38% of the value of the S&P500 is generated by the “7 Magnificent,” we have a situation to address.
Challenges for Baja California and Risk Mitigation
Within the S&P500, at least 30 companies in Baja California are part of that index, with growth rates ranging from 5.7% to -0.08%, according to shareholders. The question is: how can we make these companies more productive? Although the S&P500 is not an index directly related to state development, it indicates that growth trends are restricted by productive performance.
The evolution of the state’s ecosystem is moving towards “derisking” or “risk mitigation” solutions. This issue, in itself, is crucial for the country. Financial institutions in several countries continue to adopt this process, ending or restricting relationships with clients and business categories that raise doubts about their continuity or financial health; previously, business was done, but risk was managed.
The U.S. is asking Mexico to comply with risk mitigation and avoid decoupling; in other words, if Mexico eliminates risk in the same way the U.S. does—through tariffs and audits—we can avoid decoupling from the agreement.
Economic Slowdown and the USMCA Relationship
To mitigate risk, we must think about what technology will make us stronger to maintain steady development, as it will help us identify which parts of our value chain are scalable, which are purely specialized, and what convergence we have with the economic ecosystem.
If we focus on understanding the USMCA, it seeks to have the convergence of the three countries unified and fully integrated, not just adopted by one country. It’s unfortunate to hear Democratic candidate Harris publicly state that she was one of those who voted against the USMCA. However, both the Republican and Democratic candidates for the U.S. presidency agree that “Mexico owes TIME to the USMCA.”
“Owing time to the USMCA” means that the required conditions for growth were not developed in time—let alone in the required manner—due to internal country regulations, which puts us at a disadvantage. We will quickly have to accept or adopt measures to be reciprocal in the agreement, and one of them is already affecting us at an emergency level: the cancellation of access to preferential tariffs under the eighth rules.
A significant part of the slowdown we are about to experience is due to the fact that the “7 Magnificent” will grow very little in the next 18 months because of economic adjustments, leading to an international slowdown. This was expected, but the dependency on Wall Street indexes had never been so high with so few companies.
Luis Manuel Hernandez, PhD, Coordinator of the Nearshoring and USMCA Compliance Dialogue Table
LI. https://www.linkedin.com/in/lmhg/
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