First impact: Trump, re-election and the Mexican economy

By Dr. Tim Sandle
November 7, 2024
DIGITAL JOURNAL 

Donald Trump has floated broad tariffs alongside high rates on autos from Mexico and levies to stop fentanyl from entering the country - Copyright AFP Anthony WALLACE

To the amazement and shock, of many people outside of the U.S., Donald Trump is heading back to the White House. This defied opinion polls and ran contrary to what could conceivably happen within other democratic systems.

Now the dust is beginning to settle, thoughts turn to ‘what will happen next?’ as well as the ramifications for the relationship between the U.S. and other countries. This includes the less financially salubrious neighbour Mexico.

To gain an understanding upon the Mexican economy, Digital Journal heard from Quasar Elizundia, Research Strategist at Pepperstone.

Elizundia opens by considering the significance of the election: “The re-election of Donald Trump has sparked serious concerns about the future of the Mexican economy. After the results were announced, the Mexican peso depreciated significantly, falling to its lowest level in two years, underscoring Mexico’s economic vulnerability in the face of trade uncertainty with the United States.”

Expanding on what this means, Elizundia continues: “This decline highlights the peso’s fragility amid Trump’s protectionist policies and the risk of potential renegotiations of the United States-Mexico-Canada Agreement (USMCA).”

The economic system will become more fragile based on rumours as to the first wave of policies likely to come out of the Trump Whitehouse: “Speculations about the imposition of new tariffs or an early review of the USMCA concern analysts, who fear that the manufacturing and automotive sectors—pillars of the Mexican economy—could be affected by rising export costs.”

There are other economic factors to consider, observes Elizundia : “The strength of the dollar has also pressured oil prices, directly impacting Mexico’s oil revenues, a crucial source for the country’s fiscal balance. If these conditions persist, we may see a rapid deterioration in the fiscal and trade balances, which could increase pressure on the peso and limit economic growth prospects.”

Inward investment from other nations could also be affected, Elizundia warns: “In this context, foreign investment is also facing significant risks. The recent decline in gross fixed investment and delays in public project execution exacerbate the outlook, as many investors may opt to redirect their resources to markets with greater political and economic stability.”

Social policy will also hurt the economy, Elizundia explains: “ Additionally, the Trump administration could adopt measures affecting remittances and heighten migration tensions, which would have a direct impact on millions of Mexican families reliant on these flows.”

Elizundia concludes, noting: “Markets remain cautious, with analysts warning that the current environment could trigger a period of high volatility for the Mexican peso and the broader economy. If uncertainty continues, 2025 could become a challenging year for Mexico, as the economy struggles to grow in an increasingly challenging context, both internally and externally.”