The fear of a Donald Trump victory has reached fever pitch in Mexico this weekend, as the nation’s economists pontificate on the potentially devastating effects such an outcome would have on both the country’s currency and its broader economy. In recent weeks, Mexican financial authorities even ordered local banks to stress-test the potential impact on their balance sheets of Trump winning the U. S. presidential election.
They have good reason to be concerned. If Trump wins the election and actually honors some of his pledges, particularly those regarding trade, the immediate fallout for Mexico is likely to be brutal. After all, a staggering 80% of Mexico’s exports go to the U. S. That’s similar to the level of dependence that the Cuban economy had on its trade with the Soviet Union at the height of the Cold War.
There’s also the threat a Trump victory could pose to the remittances sent by Mexican immigrants from the U. S., which amount to nearly $25 billion each year, roughly 2% of the Mexican gross domestic product, according to the World Bank.
And that’s not to mention the risk posed to the Mexican peso, which for years has been liberally used and abused by traders as a general proxy for global risks. In recent months it has become the number-one hedge against a Trump victory. As election fever – and fear – have risen in the U. S., the peso has experienced one of its most volatile periods in decades, prompting the Mexican Secretary of Finance Jos Antonio Meade Kuribrea to concede that the pressures it faces are so huge that there would be no point in the government or the Bank of Mexico even trying to intervene to bolster its value.
This post was published at Wolf Street by Don Quijones ‘ November 6, 2016.
Follow on Twitter
Recent Comments