Buy Mexican' Campaign Lacks Traction but Inflation and Low Wages Don't Help

By Juan Montes Features Dow Jones Newswires

After U.S. President Donald Trump took office in January, Mexico's government and trade groups encouraged Mexicans to buy domestic goods in a campaign that included the installation of large banners across the country displaying the standard bar code for products made in Mexico.

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The goal was to ride a wave of nationalism provoked by Mr. Trump's protectionist rhetoric, his insults of Mexicans during the campaign and his plans to build a "beautiful, big" wall along the U.S.-Mexico border.

But so far, the strategy doesn't seem to have had a great impact, though inflation and low wages don't help. Seasonally adjusted consumption of domestic goods fell 0.9% in March from the previous month, following a 0.2% contraction in February, the national statistics agency said Tuesday. Consumption of national goods was also down 0.1% from a year earlier.

The main reason for the decline is rising inflation that has hurt purchasing power, said Viridiana Ríos, a researcher at the Washington-based Wilson Center who specializes in Mexico's economy. Average wages in Mexico fell 1.8% in real terms in March from the year before, due to a large extent to a big jump in consumer prices since January.

A weak peso at the beginning of the year and higher gasoline prices propelled annual inflation to an eight-year high of 6.17% in early May. Employment has continued to grow, although wages remain low, averaging $2.20 per hour compared with $21 in the U.S.

"With such low wages, you can't build in Mexico a robust internal demand. That's the big problem," Ms. Ríos said.

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Some goods, such as medicines, are mainly provided by foreign companies, and other local products are often not competitive, even after a strong peso depreciation during the last two years.

"I do care about my country, but I care more about my pocket," said 83-year-old Marisa Domínguez recently as she reluctantly tossed two imported cans of soup, which were on sale, into her supermarket shopping cart.

In early February, when tensions in the bilateral relationship were running high, the government launched the campaign to promote the purchase of domestic products, such as processed food, toys and household appliances. It displayed the Made in Mexico logo, the symbol of a Mexican eagle that was first used in 1978 when Mexico was a closed economy. Many Mexicans replaced their social network avatars with the green, white and red Mexican flag.

Well-established consumer habits, and the fact most Mexicans haven't felt any major economic harm so far from Trump administration policies, could also help explain the data, some analysts said. Polls show 90% of Mexicans disapprove of Mr. Trump, but the economy maintained steady growth in the first quarter, and the peso has appreciated 20% against the U.S. dollar since February.

Consumption of imported goods, after declining in much of 2016, was up 0.3% in March from the month before and up 3.7% from the year before, benefiting from the recent appreciation of the peso.

A U.S. withdrawal from the North American Free Trade Agreement seems increasingly improbable, and Mr. Trump's rhetoric against Mexico has softened since he took office.

The latest consumption data suggest that the reality of interconnected economies has greater weight than a short-lived wave of nationalism that included anti-Trump marches and calls on social media for boycotts of U.S. companies and products.

Since the 1980s, Mexico has pursued an export-oriented economic model that has become the country's growth engine, and it's opened its markets to imports of myriad consumer products. That's a far cry from the protectionism of the 1970s when state-owned companies produced everything from refrigerators to cars and train carriages under the slogan, "What's made in Mexico is well made."

Write to Juan Montes at juan.montes@wsj.com

(END) Dow Jones Newswires

June 06, 2017 16:57 ET (20:57 GMT)