Analysts have alerted traders to the vulnerability of the Mexican peso amid potential risks related to the U.S. presidential election while others warn that a win by former President Donald Trump could have grave consequences for the Mexican economy.
The news agency Reuters reported last week that the peso slipped in response to a potential Trump election win because Mexico’s currency is seen as “vulnerable to new tariffs Trump plans to impose.”
The Republican Party candidate has repeatedly stated that he would slap massive tariffs on vehicles imported from Mexico if he wins on Nov. 5. The uncertainty related to the contentious U.S. election has coincided with the peso’s slipping 4% from its September high.
Earlier this month, JP Morgan downgraded the peso to market-weight from overweight, citing traders’ concerns about the next U.S. president’s approach on topics ranging from tariffs to the upcoming review of the USMCA trade deal.
Some traders and foreign exchange markets are reflecting confidence in a Trump victory with so-called “Trump trades” being viewed as a bet on whether Trump or Democratic Party candidate Kamala Harris will win. One key “Trump trade” is the buying and selling of shares of Trump Technology and Media Group (DJT).
Trump trades are visible in the dollar’s rebound against a range of currencies, particularly the Mexican peso, strategists said, according to Bloomberg News.
“Implied volatility in the dollar-peso pair has been ratcheting up in line with Trump’s gains in betting markets,” Karl Schamotta, chief market strategist at payments company Corpay in Toronto, told Reuters.
Investors taking wait-and-see approach
Nuevo León Governor Samuel García said that Mexico’s economy will be impacted regardless of who wins the U.S. election. While Trump has threatened higher tariffs, Harris voted against the trilateral USMCA trade agreement, citing insufficient environmental protections.
Although García acknowledged that some projects have been paused as investors await the outcome of the U.S. vote (Elon Musk postponed construction of a Tesla plant in Nuevo León because of Trump’s tariff threats), he insists that such projects have not been canceled.
García also said that once the outcome is decided, the winner’s automotive policies will become clear and investors will respond.
It is this uncertainty with regard to future U.S. trade policies, however, that is contributing to the peso’s volatility.
Traders, said JP Morgan, need more visibility on trade policies to confidently assess the path for the currency in the medium term.
What would a Trump victory mean?
The Republican candidate’s protectionist rhetoric has alarmed many entrepreneurs in Mexico, especially in the automotive sector, one of the most important industries in Mexico. The auto industry comprises 4% of Mexico’s GDP and makes up more than 20% of the nation’s manufacturing sector, according to the Mexican Automotive Industry Association (AMIA).
“The entire value chain — from assembly plants to maquiladoras to parts suppliers — is nervous,” says Jesús Manuel Salayandía, the president of Bloque Empresarial Fronterizo, a new association of entrepreneurs located near the Mexico-U.S. border.
The nervousness is derived from Trump’s constant threats to impose tariffs on imports of Mexican vehicles. The GOP hopeful has alternately promised to impose 100%, 200% and 300% tariffs, although such changes would require renegotiation with Mexico and Canada of the USMCA.
Nevertheless, the concern is warranted as 80% of Mexico’s overall exports go to their northern neighbor, and given that Trump’s threats could become a reality when the USMCA comes up for review in 2026.
Even so, Mexico’s President Claudia Sheinbaum expressed confidence that the tariff threats are just campaign bluster.
“The peso has been impacted by statements made by one of the candidates, but I believe it is just campaign chatter,” Sheinbaum said. “I don’t think the treaty is at any risk.”
However, should Trump win and pursue an aggressive trade policy, Mexico’s economy could shrink as much as 2% by 2026, Dana Bodnar, an economist with trade credit insurer Atradius, told the newspaper El Economista.
Bodnar also warns that foreign direct investment in Mexico could shrink if Trump wins.
For its part, Moody’s Ratings has warned that even a tariff as small as 10% on Mexican imports could paralyze Mexico’s economy in 2025, El Economista reported.
With reports from Qué Pasa Media, EFE, Reuters, Bloomberg and El Financiero
I’m sorry, but a Trump election would be a disaster for the Mexican economy. Not only will he impose huge tariffs, if he fulfills his promise to deport millions of immigrants (and I don’t doubt he will if elected) Mexico and other Central/S. American countries will be deprived of the money immigrants send home. Not to mention how they would manage the costs of supporting these deported migrants. It would be an economic and humanitarian catastrophe on so many levels.
. . . I fear that the Mexican ecomony ( read government bureaucracy & corrupt politians ) “betting on” China will destroy from within the future solid foundaton building growth potential that the entrepreneurial culture of Mexico possesses . . . we’ll see what happens, I could be wrong . . .
So does Mexico want what is best for there country? So what is wrong with the US wanting that also. There has to be a fair balance for both countries and lets not make assumptions. The locals all along the border are happy the dollar is getting stronger as it is a dollar driven economy.
Just an observation by a non US citizen… one candidate has “environmental concerns”, the other has “rhetoric”. One candidate’s name is mentioned 20 times, the other only 2….in a race that’s considered to be close. I suppose any political system has infinite points of debate, but the level of polarization (everywhere) has become concerning.
It’s going to be very interesting to see what unfolds in Mexico post election, regardless of victor. Especially if it’s the candidate that vowed to directly hit the cartels within their own borders.
Unfortunately this publication suffers from the same one sided, leftist, bias as most other media these days. The polarization of media like this should concern everyone. The public aren’t stupid, they see the bias and they are walking away from it. Your comment was spot on but I’m skeptical anyone at MND is listening.
Obviously missing from this one sided piece is the long term negative implications of the U.S. trade deficit and the hollowing out of the country’s manufacturing capability. Trump understands this very well. MND apparently does not.
It would be a disaster for Mexico if the U.S. finally crashes from the combined effects of huge budget and trade deficits. That would be obvious to any media or writer who looks at things from a centrist viewpoint.
Journalists across the board are mostly leftists. My guess is that they have pure intentions when entering the field but are indoctrinated by the system, starting with their educations (indoctrinations.) Any publication, including MND, would have a difficult time staffing itself with critical thinkers. They’re all largely stuck with choosing from a pool of leftists.
The USMCA, the reformed NAFTA, was renegotiated to benefit the US, Canada and Mexico, one of the most effectual terms being the significantly increased North American (that includes Mexico) content in automobile manufacturing and minimum wages requirements (benefitted Mexico.) Mexico gained a lot, as did Canada and the US. The loser was China, and to a lesser extent Korea and Japan.
A threat of tariffs on Mexico is actually a threat to Mexico to stop allowing the Chinese to use Mexico as its manufacturing base for the North American market (or any market.) When Chinese run an auto plant they even bring in their own labor, providing Mexicans with few and only the most basic jobs in the value chain. Trump’s USMCA increased high paying and stable manufacturing jobs in Mexico, exactly what the Mexican middle class and the country needs to continue it’s GDP and standard of living growth. Allowing those jobs to be filled by Chinese within the shores of Mexico harms Mexican workers directly and all of North Americans indirectly, particularly over the long run, as you say.
Trump’s economic policy will create incredible growth in the USA. 80% plus of Mexico’s exports are to the USA. In the short-term, Mexican elites will devalue the peso aggressively and shift the costs of the tariffs onto the Mexican working class via inflation. They wont sacrifice medium and long term market share and the near-shoring opportunity to the the biggest consumer market in the world. It’s already pricing in…