The Chinese involution and Mexico

One of the most important and consequential global phenomena is the process of regression that China is currently experiencing.

The Chinese development model, similar to the "developer state" model coined by Japan and South Korea, has been a resounding success: in two decades, it has lifted hundreds of millions of people out of poverty and made China the world's second-largest economic power. However, this model has limits.

This centralized system, in which Beijing sets growth targets for regional and municipal governments, inevitably leads to suboptimal resource allocation. For a long time, provinces achieved their GDP targets through massive real estate investments. Buildings and entire cities were built for which there was no demand. The result was the collapse of Evergrande, China's second-largest developer, unable to service its $300 billion debt—three times that of Pemex.

The collapse of the real estate sector, visible in entire abandoned cities, led Beijing to push provinces to invest massively in manufacturing in order to meet growth targets in sectors where there was demand.

Overinvestment was concentrated in what Beijing calls the "three new" industries that will drive its future growth. This led to a significant portion of manufacturing investment being directed toward the production of solar panels, electric vehicles, and batteries.

Domestically, excess supply has unleashed a price war that eats away at corporate margins, turns multimillion-dollar investments into loss-making assets, and further strains China's fragile financial system. This is known as "involution" ( ), a term that describes competition so intense it leads to diminishing returns and stagnation. As Michael Pettis notes, "It was the combination of a surge in manufacturing investment and the unevenness of its distribution that ultimately determined the contours of the 'involution.'"

Globally, the situation is even more worrying. To move this production, China exports at artificially low prices, generating massive dumping that destroys local industries unable to compete against subsidized goods.

This is especially worrying for Mexico. Like China, we are a manufacturing country, but our industry operates under a market logic that cannot operate at a loss. Free trade in Mexico did not yield the expected results, largely because it coincided with China's entry into the WTO. The effect of the flood of Chinese products is already visible, particularly in the automotive sector, once the crown jewel of Mexican industry. In the last two years, sales of Chinese cars in Mexico have skyrocketed. We don't know by how much, because they don't report data to INEGI (National Institute of Statistics and Geography), but just look at the streets. This is already impacting the country's most developed industry: the one that exported the most, generated jobs, and added value.

Yesterday afternoon, it was leaked that Mexico will increase tariffs on Chinese products, both on its own initiative and under pressure from the United States. This is encouraging news and the path the Mexican government should follow. Free trade, as Ricardo described it in the 19th century, is beneficial to nations when competition is fair; it is not beneficial to companies that operate at a loss solely to meet centralized goals. Congratulations on this decision by the Mexican government.

He said it with his own voice while reading a letter, last Monday, in front of Judge Brian Cogan of the Federal Court of Brooklyn, in New York, Ismael el Mayo Zambada, serene, with the calm and white beard of a grandfather who gives advice because he knows very well what he says, said that he has been in the drug trafficking business for 50 years, a period in which he was able to operate with impunity thanks to bribes paid to police, military commanders and politicians, from his beginnings until the last day of his stay in our country (July 25, 2024).

Thanks to the Sinaloa boss, prominent politicians, military, and police chiefs will no longer be able to boast about their differences. The country's biggest drug trafficker has unwittingly awarded them a bachelor's degree from the Great University of Drug Trafficking. The war of statements like "we are not equal" or "our party does not make pacts with criminals" is over. El Mayo only had to open his mouth for five minutes to identify police officers, military personnel, and politicians as belonging to the same ilk. At the time, they received their discreet, stuffed Manila envelopes.

In the future, the PNT (Narcotics Trafficking Party) could be registered with the INE: it has structure, it has discipline, it has plenty of candidates, and it won't need public funding. And ideology? That's a thing of the past. It no longer matters whether you're left, right, or center: they all follow elliptical orbits, one of whose focal points is the sun of money.

The change brought about by Zambada is truly revolutionary. After his declaration, Mexican politicians must resign themselves to being all the same. A recommendation for readers: when you see politicians campaigning, saying they represent change, tell them they do, but the one with the manila envelope containing bills in exchange for impunity.

El Mayo will die in prison, but he will leave a great legacy, and it won't be drug trafficking. He achieved perfect democratization: politicians from all Mexican parties ate out of his hand. Therefore, it must be admitted: Zambada García achieved what no one else could: national unity.

On another note: While U.S. Attorney General Pam Bondi celebrated what she considered a "historic victory" and the U.S. justice system painted Mexican drug traffickers as outright villains, no one seemed to remember that, across the border during those same 50 years, one and a half million kilos of cocaine entered the country, as naturally as boxes of avocados arrive for the Super Bowl.

The DEA, the Border Patrol, the FBI, and the sheriffs may swear they were monitoring the dividing line, meter by meter, but the drugs crossed into the US as tourists with multiple visas. And one wonders, a little spitefully: Are they really that naive, or were they simply waiting for their own American-sized manila envelope?

The paradox is that while Washington lectures Mexico about drug trafficking, its black market—white, African, Latino, and all—has become the business's biggest customer. Fifty years of national addiction don't just sustain themselves. It requires logistics, consumption, and, of course, turning a blind eye as wide as Donald Trump's ankles.

In the end, what Mayo confessed to isn't an isolated crime: it's a snapshot of two countries that presume themselves enemies of drug trafficking, but have actually been its supporters. If anything is clear, after fifty years, it's that on the drug trafficking stock exchange, Mexico and the United States trade together.

The Brooklyn trial, at times, seemed more like an act of magic than justice: “Look, everyone, at the Mexican drug trafficker while we try to make the elephant in our house disappear: the inability, or rather, the lack of will, to stop tons of white powder from passing under our noses… literally.”