Home Business News If Donald Trump wins the election what will happen to the Mexican Peso?

If Donald Trump wins the election what will happen to the Mexican Peso?

26th Feb 24 11:16 am

Donald Trump’s recent victory over Nikki Haley in the South Carolina primaries has reignited the debate about his potential Republican candidacy and his reelection as President of the United States.

However, the inevitable question arises beyond the internal implications for US politics: What would this mean for Mexico?

Donald Trump’s possible reelection as President of the United States poses a significant risk to the Mexican economy. In 2016, his election caused a notable increase in the dollar’s value, reaching 21 pesos.

Looking back, on election day alone, the peso depreciated by over 10%, going from around 18.50 pesos per dollar at the start of voting to over 20.50 at the end. This volatility reflects the uncertainty surrounding the commercial relationship with Mexico and the potential threats it posed to the country.

If Trump returns to power, instability in the Mexican financial market could worsen. His policies could trigger additional inflationary pressures and prolong the wait for the US Federal Reserve to cut interest rates. This would reduce the interest rate differential between Mexico and the United States, affecting the strength of the Mexican peso and generating even more concerns in financial markets.

Trump’s return comes at a critical moment for Mexico, characterized by the growth of nearshoring, the migration crisis, and the potential upcoming review of the USMCA in 2026. He could use this review as a pressure tool during his term, intensifying trade tensions between both nations and undermining Mexican economic stability. The close commercial dependence between both countries, combined with the Republican magnate’s threats to renegotiate the Treaty, poses a challenging landscape for the Mexican economy.

Furthermore, uncertainty about migration policy under a second Trump term could negatively impact Mexican labor and remittance flows in the United States, representing a significant part of the Mexican economy. This could affect not only migrant workers and their families but also key sectors of the Mexican economy that rely on these remittances for their livelihoods.

A strong dollar mainly affects Mexicans with loans in that currency; it also hits those who need to make imports for their economic activity and those who travel abroad. The main concern is that a weaker peso could generate inflationary pressures as the cost of imports increases, which would have to be absorbed by consumers rather than companies. Conversely, export sectors and tourism benefit the most from a cheaper peso.

In conclusion, Donald Trump’s possible reelection presents significant challenges for Mexico regarding financial volatility, currency depreciation, trade tensions, and remittance flows. Mexico must prepare to face these challenges, diversify its economy to reduce its dependence on the commercial relationship with the United States and seek internal stability through solid and diversified economic policies.

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