Without assuming the presidency, Donald Trump is already generating negative results for his southern neighbor. Ford Motors decided to abandon a $ 1.6 billion project in the face of fears that some of the threats made by the the candidate will be met. This bad news immediately raised the exchange rate of the Mexican peso against the dollar and adds to the recent increase in the price of gasoline and electric power, which will have a direct impact on inflation.
The problems are just beginning. The most pessimistic regional speculations, after the triumph of the New York billionaire, were heading towards Mexico. Not only for repeated references to the construction of a border wall and the expulsion of millions of illegal immigrants. Donald trump is now insisting the mexico to repay US for Great Wall, but for the eventual withdrawal of the North American Free Trade Agreement with Canada and Mexico, NAFTA. At that time he warned that he would take radical measures against companies in his country that continued to operate or invest money in the neighboring country, as this was a threat to workers in the United States. His speech was in large part the workers of industrialized states who would give him the victory.
Ford had announced its expansion plan in the campaign. Trump accepted the challenge and denounced right and wrongs the company for affecting the local workforce. Already as president-elect he used an effective strategy by putting General Motors, the other big vehicle company, in the face of the dilemma of continuing to operate there and having to pay a tariff close to 35% to enter his product. Following the announcement of Ford continues to brand the sword of Damocles, as the formula can be applied to other good companies that have made large investments in Mexico.
Hence the headache of Enrique Pena Nieto, president of Mexico, is not without concern. After the start of NAFTA in 1994, the Mexican economy experienced a period of significant growth. The United States became the main direct investor, with about 50% of the market and as a consequence, the automotive sector became a banner of domestic production. In this way, Mexico made a bet of the future, sending about 80% of its exports to the neighboring country and chaining its economic activity especially with Washington. Although some analysts believe that the effect will not be so serious, as the country employs about 900,000 people in that sector and produce three and a half million vehicles. Ford only accounts for 10% of such production. In addition, it will maintain its activity in the other plants that it has there. At least for now.
However, in the broad view of the economy, the news does have a major impact. The change was again 20 pesos per dollar, without reaching the 21.3, after knowing the triumph of Trump. The recent announcements of the beginning of the year of gasoline increase, or the petrol, its direct effect in electricity and the minimum wage have ignited the alarms. Inflation, close to 4%, may end 2017 at 5%. In this way, according to experts, there will be direct effects on investment and consumption, in addition to the increase in the cost of credits. The Business Coordinating Council has joined those who request “immediate economic measures to meet the challenges of 2017”.
The immediate effect is with protests in different parts of the country and it is to be presumed that, if things continue to get complicated, as is speculated, the street will become even more hot. This is the unflattering scenario that will have to deal with Pena Nieto this year. As was said in the last century, “poor Mexico, so far from God and so close to the United States.”