Donald Trump’s Twitter feed is becoming a problem for the Mexican economy.
The day Trump won the US presidential election, the Mexican peso plummeted to its weakest level on record against the US dollar. Investors dumped the currency on expectations Trump would push ahead with plans to build a wall along the US-Mexican border, rip up NAFTA, deport millions of illegal immigrants, and constrain remittances sent to Mexico. Mexico was worried too. The central bank raised interest rates and the government began preparing for what life after NAFTA (paywall) might be like.
Since that day, Trump has rolled back on plans for a complete wall and little new has been said about NAFTA. Still, the Mexican peso dropped to a new record low today, weakening to 21.6 pesos per US dollar. Trump’s Twitter promises to punish companies moving jobs to Mexico has done the damage.
On Jan. 3. Trump threatened General Motors with a “big border tax” for making some of its cars abroad. The warning came in a tweet without details. Trump has previously said he would tax American companies importing their goods back into the US at a 35% rate.
General Motors said most Chevrolet Cruzes sold in the US are built in Lordstown, Ohio. But a few hours later Ford said it canceled plans to build a $1.6 billion plant in Mexico and would instead invest in new capacity in Michigan. Ford CEO Mark Fields cited among other things,“the more positive U.S. business environment that we foresee under President-elect Trump.” Trump assures us there’s more of this to come.
The details of the deals aren’t catastrophic for Mexico. Ford will still move production of its fuel-efficient Focus car from the US to Mexico, it just won’t need to build a new plant to do it. General Motors is standing by its strategy. The largest car companies have announced at least $22 billion in investments and 25,000 more jobs in Mexico by 2019. Nonetheless, the rhetoric of Tump’s “made in America” policies is causing investors to dump the peso.
It’s the last thing the Mexican economy needs. The peso was one of the world’s worst performing currencies last year and that will boost inflation, forcing the central bank to keep raising interest rates, which could in turn crimp economic growth further. The government abruptly ended subsidies on fuel prices, sparking protests when prices rose 20% at the beginning of the month.
It won’t take a wall for Trump to derail Mexico’s economy. Just more tweets.