02222019Fri
Last updateFri, 22 Feb 2019 1pm

Uncertainty will bruise Mexican currency, economy as Trump awaits coronation

It’s a sad truth that when Mexico chooses a leader, few Americans could care less which party they belong to, what political viewpoints they represent or how this might impact their lives.

bbbbbSuch is the imbalance between the two nations’ economies that the mere choice of a U.S. president with a previously advertized anti-Mexican agenda can quickly plunge this country into financial and social turmoil.

Much like on the night of June 23, when the first returns from British referendum voters showed that Brexit was a real possibility, money markets reacted savagely when the vote count on Tuesday night suggested Donald Trump’s fortunes to be soaring. As expected, the peso was the major casualty, falling more than 13 percent to 20.70 to the U.S. dollar in trading on Asian markets that evening – its biggest collapse since the 1994-95 “Tequila Crisis.”

Although Mexico’s currency rallied slightly Wednesday, the damage continued Thursday, with the peso slumping to 20.64 by the end of the day.

Analysts expect the volatility to continue until Trump provides some degree of clarity on his intentions regarding trade with Mexico (some forecasts contemplate a year-end rate of around 22 to the dollar). The unease centers mostly on Trump’s promise to renegotiate or scrap the North American Free Trade Agreement – “the worst trade deal in the history of our country,” he called it – and slap punitive tariffs on products imported by U.S. companies that have moved or outsourced to Mexico.

The uncertainty that Trump’s upcoming elevation to the White House has triggered in Mexico will be especially felt in the state of Jalisco, whose economic wellbeing relies heavily on exports to north of the border.Jalisco Governor Aristoteles Sandoval

Speaking on Thursday, Governor Aristoteles Sandoval said exports will inevitably decrease should Trump keep his word and punish U.S. companies based in Jalisco.

Industrial leaders weighed in too, suggesting Jalisco’s focus should now shift from the United States toward other lucrative international markets. This is much easier said than done, however, since the Sandoval administration has invested considerable time and money in vigorously – and successfully – courting U.S. investors, having seen exports from Jalisco to the United States increase by almost four percent in the first eight months of 2016.

Despite the pronouncements of Trump during the campaign, few economists believe he will actually follow a protectionist agenda and impose tariffs on either Mexico or China, thus sparking potential trade wars. As a businessman himself, many believe he will quickly realize how such policies will be counterproductive and reduce the competitiveness of U.S. firms.

Experts on both sides of the border suggest  that a complete reversal of U.S. trade policy is most unlikely and that Trump will be happy just to “tinker” with trade mechanisms.

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