HOW TRUMP PRESIDENCY MIGHT AFFECT MEXICO
Forbes.com reported in November 2016:
Why does it matter so much to Mexico? 80% of Mexican exports go to the US, and so campaign pledges to renegotiate or even tear up NAFTA cast a significant pall over the economy. It appears that, at a minimum, the new USA administration will use the threat of renegotiating or pulling out of NAFTA as a means of pressuring Mexico into accepting concessions over tariffs on certain products – chiefly manufactured goods, in the hope that American firms with facilities in Mexico will move elements of their supply chain back to the US. Mexico cannot afford to lose access to the US market and so would almost certainly have to accept a new deal, but the implications of that on the economy as a whole and Mexican domestic politics could be dramatic in the short term.
According to Latinnews.com:
A number of security experts believe that the “Trump wall” – as described by its main proponent – will never be built. They argue that the cost and technical challenges are prohibitive and that there are legal complications over ownership, right-of-way conflicts, eminent domain disputes, and environmental regulations. But it is feasible that a future US administration would further strengthen and tighten border patrol and deploy advanced technology, including drones and other devices, to make illegal entry significantly more difficult. Mass deportations in the other direction are also possible.
Mexican stock trade building in Mexico City
As the process would most probably be accompanied by a sharp cooling in bilateral relations, it is likely that it could be poorly managed and would have serious unintended consequences. One is that a less porous border with fewer illegal drug trafficking routes might intensify the struggle to control those routes between the drug trafficking organisations (DTOs). If Mexican criminals are deported from US prisons and simply dumped on the Mexican side of the border that too is going to increase, not reduce border tensions. US-Mexican security cooperation would most likely decrease sharply and the Mérida initiative – a part US-funded joint security programme – might not survive. Poor security cooperation between the two countries might be seen as a great opportunity by the ever-resourceful DTOs.
According to US border patrol statistics a total of 150,304 immigrants were arrested when trying to enter the US illegally between October 2015 and February 2016, a 24% increase on the same year-earlier period.
Mexico has a young population, brimming with talent that want to better their lives and are not afraid to work hard.
Mexican presidents on Trump:
Former President Vicente Fox (2000-2006) said he would not “pay for that f****** wall”, adding of Donald Trump that “He reminds me of Hitler…he’s going to use the executive power to do what he’d like”. Another former Mexican President, Felipe Calderón (2006-2012), pointed out that Trump is himself the son of immigrants but “is talking about immigrants who have a different skin colour to him. Frankly it’s racist and exploits sensitivities, rather like Hitler did in his day.”
The Economist.com reports:
Outside a massive Volkswagen (VW) factory in Puebla, two hours’ drive from Mexico City, workers fret about Mr. Trump’s threats to whack big tariffs on cars made in Mexico. One American carmaker—Ford—cancelled plans to build a $1.6bn plant in San Luis Potosí, some five hours farther north. It may have had other reasons for doing so, but workers in Puebla are not reassured.
The Trump presidency streaking toward Mexico is already causing problems. Inflation has started rising in response to the devaluation of the peso caused by his election. The central bank raised interest rates five times in 2016; it will probably have to continue tightening. After a sharp rise in public debt as a share of GDP over the past several years, the government must curb spending. Over the past few months, economists have lowered their forecasts for GDP growth in 2017, from an average of 2.3% to 1.4%. On January 1st the government cut a popular subsidy by raising petrol prices by up to 20%. Six people died in the ensuing protests.
Mexican officials think the Trump presidency poses two main dangers. The first is that the United States will renounce NAFTA, which it can do after six months’ notice, or simply shred it by putting up trade barriers. The second is that, as a way of forcing Mexico to pay for the wall, Mr Trump will carry out his threat to block remittances from immigrants in the United States. These inject some $25bn a year into Mexico’s economy.
The president-elect’s other big anti-Mexican idea, to dump millions of illegal immigrants on Mexico’s northern border, is seen as a lesser threat. Under Barack Obama, the United States deported some 175,000 Mexicans a year; Mr. Trump will find it hard to increase that number.
USA Republican plans to tax imports as part of a reform of corporate income tax would hit Mexico hard. The Mexican government sees that as a problem to be addressed by the United States’ trading partners in concert, rather than by Mexico alone.
Mexico has few attractive options. In a trade war, it would suffer horribly. Raising its own tariffs would hurt its own consumers. Yet that does not mean that Mexico is defenseless. In 2009 it imposed tariffs on nearly 100 American products, including strawberries and Christmas trees, after the United States barred Mexican lorries from its roads to protect the jobs of American drivers. That got the attention of American politicians: the pro-trade lobby prevailed.
Mexican analysts are thinking about how the country might fight the next skirmish. Maize (corn), grown mainly in states that voted for Mr. Trump, will be a tempting target. The United States sold about USD $2.5 billion-worth to Mexico in 2016. Faced with the loss of their biggest market, American maize farmers might press the White House to relent. On January 6th, 2017 16 American farming groups warned in a letter to Mr. Trump and Mike Pence, the vice-president-elect, that disrupting trade with Mexico and other countries would have “devastating consequences” for farmers, who are already suffering from low prices.
Also for the USA, negative impacts are expected for those businesses trading with Mexico. Vinepai.com reported:
The stock of Constellation Brands, which imports Corona and other Mexican beers into the United States, was tightly correlated with the US race for the presidency. When the FBI recently decided to look at more of Hillary Clinton’s emails, Constellation’s stock dropped. When FBI Director James Comey announced no charges would be brought, it climbed right back up, surging with the promise of a Clinton presidency.
These trends were actually fairly consistent with the markets overall. But things changed the day after Trump won the election. While U.S. markets rallied to record closing highs on November 9th, Constellation saw its stock collapse, closing down nearly 8%, off of even deeper lows.
Is a Trump presidency going to threaten the U.S.’s access to Mexican beer?
It would be an ironic twist, since Mexican beer has been enjoying intense popularity in the U.S. in recent years. In 2015, Corona was the most popular imported beer in America. The Mexican beer market — which dominates the beer export market — sends 75% of its exports just north of the border to the United States.
If Trump went through with his promise of knee-capping NAFTA and instituting tariffs, it would make it more expensive to bring finished beer into the United States. It would also make it more expensive for companies in Mexico to make that beer. The Grupo Modelo brewery consumes 6.5 million bushels of barley a year. A large portion of that barley comes cheap from the United States. Barley would become a lot more expensive without NAFTA.
For US shareholders, though, and the 9,000 employees at Constellation, Trump’s impact on
Mexican beer could go deep if the stock doesn’t stabilize. Mexican beer made up 63% of the US company’s profits in 2016, according to Benzinga, and trade restrictions or tariffs will cut into that and impact business.
Mexico stands to be greatly impacted by a Donald Trump victory in the 2016 US presidential election. Renegotiating NAFTA1 would impact a variety of industries in Mexico, especially the auto industry.
Mexico’s auto industry is poised to grow at a good pace over the next four years. Vehicle production is anticipated to increase more than 50% until 2020. So, Trump’s stated intention of restricting trade and financial flows between the US and Mexico would impact industrial growth in Mexico (EWW).
In January 2016, Weforum.org published an article by Mexican Enrique President Pena Nieto. Much of his reports about the economy doesn’t hold anymore after the USA presidential elections, but a few areas of economic performance still works:
Connectivity is the key in an increasingly digital economy. Mexico is one of the few nations in the world whose constitution formally recognizes the right of its people to a broadband internet connection. The goal is to connect 70% of households and 85% of micro, small and medium-sized enterprises to high speed internet. In order to reach this target, we have established 65 thousand public places with broadband internet connection, such as schools, libraries and squares.
In the same way, we are channeling more than 460 billion dollars for infrastructure, to successfully integrate Mexican products and services into the 21st century global economy. Mexico has become a manufacturing powerhouse. It is one of the top global sellers of TV sets, vehicles, auto-parts, computers and cellphones, among several other products. With improved infrastructure, we will certainly reinvigorate our competitiveness, by setting the stage for expanding the value and variety of our high-tech, export-oriented industries.
With that aim, we are building and modernizing thousands of kilometers of roads and highways, as well as improving our mass transit and railway systems. Besides, we will construct a new Mexico City International Airport and will almost double our seaports capacity on the Pacific Ocean and the Gulf of Mexico, among other large-scale infrastructure projects. Our aim is to make Mexico a world-class logistics platform. (So far El Presidente).
I feel for Mexico. There are a lot of economics problem in her future, not easily solved. Per year the absent Mexican sons and daughters living in the USA send 20 billion dollars to their relatives in Mexico. What effect will that have on those dependent on that extra money, elderly parents, children, handicapped or healthy?
On the other hand, ties with Canada can be strengthened and those could become relatively more important to the industries than those with the USA. For example, corn is also grown in Canada, as well as barley. Canada could pick up the slack delivering these products, although most likely at higher cost for Mexico with higher wages and longer transport avenues from Canada. If it comes down to that, the tariffs the US might put on those products, might have the effect that a product imported from Canada will have a similar price than if it continued to come from the US.
Here is where bi-lateral trade would come in. If Canada would take more needed workers and immigrants from Mexico to fill in for the lack of agricultural labour and those in other sectors in Canada, such as construction, the governments could develop special deals that offset the economic impacts for Mexico.