A weak Mexican economy is bad for the US
It’s interesting to watch the headlines in Mexico and the U.S.
Up here, the media is obsessed with former President Vicente Fox’s war of words with president-elect Trump over who is going to pay for the wall.
The good news is that no one cares what what Vicente Fox thinks, here or down there.
The bad news is that Mexico’s economy is shaky and that problem could land on Mr. Trump’s desk a lot sooner than he thinks.
Mexico’s problems landed on President Reagan’s desk iin the summer of 1982 and President Clinton in late December 1994. The problems followed currency devaluations and the U.S. intervened economically both times.
Down in Mexico, there are two major economic stories, i.e., the price of gasoline and the value of the peso vis-a-vis the US dollar.
The value of the peso has always created panic in Mexico, such as the 1976, 1982, and 1994 devaluations that rocked the economy.
The rise in gasoline prices has nothing to do with the U.S. This is simply a case of reality hitting Mexican consumers. Mexico cannot afford to subsidize gasoline prices anymore.
On the matter of gasoline, we’ve seen huge protests over the latest increase.
On the matter of the peso, there is a lot of concern that Mr. Trump’s words may indeed be hurting Mexico:
Uncertainty has roiled Mexico as the government waits to see how far Mr. Trump will go to keep his campaign promises to renegotiate or tear up the North American Free Trade Agreement, deport Mexican migrants and build a border wall.
On Tuesday, Ford announced that it was canceling its planned investment to build a small-car plant in the state of San Luis Potosí.
Although falling sales of small cars may have had more to do with Ford’s decision than Mr. Trump’s criticism on Twitter, the president-elect promised that the Ford episode was just “the beginning.”
He followed up with a broadside at General Motors for building the Chevrolet Cruze hatchback in Mexico, although only 4,500 of them were exported to the United States last year.
On Thursday, he trained his Twitter fire on Toyota, saying “No Way” to the company’s plan to build a Corolla factory in Mexico and warned: “Build plant in U.S. or pay big border tax.”
In response to the Ford announcement, the peso sank to a record low, prompting the central bank to intervene in markets on Thursday.
Let’s hope that Mr. Trump’s team understands what an unstable Mexico means to the U.S.
It’s easy to do a victory lap and claim that Mr. Trump has spooked Mexico or won a war of words.
More important, an unstable Mexico will mean more pressure to pack up and head north.
We saw that in the middle 1990s when a huge wave of young men and women walked over to cut our grass, fix our roofs, and clean our hotel rooms.
In the late 1990s, the booming U.S. economy absorbed all these people. In 2017-18, we won’t be able to absorb another wave. I don’t think that you can build a wall that quickly.