The US President’s Twitter announcement of a wall that would be funded with a tax on Mexican imports has thrown the peso into a fit. In the first 24 hours after the message, the peso plummeted by 40 cents as shown in the green rectangle. Investors subsequently regained confidence in the Mexican economy as Trump explained how the border wall would eliminate the incentive to stop by at Mexico for aspiring illegal immigrants from Central America into the US; causing the currency to strengthen back.
Trump’s optimistic rhetoric about the wall last Wednesday was good news for investors, given he has previously accused Mexican immigrants of being criminals, rapists and drug-dealers. The difficult plight of the Mexican people can be best appreciated by comparing the account of the local newspapers against that of the international press – while the latter immediately reported the volatility across the below three rectangles, Mexican newspapers waited for the storm to pass and celebrated the recovery (rightmost rectangle).
The pro-government press in Mexico was forced to paint an agreeable picture of the economy in order to suppress uncertainty after President Enrique Pena Nieto cancelled a meeting with his US counterpart. He adamantly stated in a press conference that he has said multiple times that Mexico “won’t pay for any wall”.
In the last 18 months, there has been a remarkable correlation – most likely causal – between the rise of Donald Trump and the value of the Mexican peso, which has depreciated down to 20.52 (2) – a whopping 50% down from its 10 year steady average of approximately 14. The current US government’s America-first attitude is spelling disaster for a country that ships 80% of their exports to the US. Mexico’s automotive trade, mainly with America, is 4 times larger than their trade surplus; a sector in which Mexicans are not likely to be able to secure new trade deals with their less developed South American allies.
Ford’s recent cancellation of their plans to build a £1.6 billion pound plant has begun to put flesh on the bones of the Republican promise to boost their domestic manufacturing.
Currently, 2017 forecasts for the Mexican economy are at their gloomiest. The greatest hope they will pick up again is that Donald Trump starts facing institutional checks to his hawkish agenda.