Trump’s tariff threats and stronger blows to the peso return

Trump’s announcement through Truth Social led to exchange rate to achieve the 20.7535 pesos per dollar after the closing of the markets in Mexico, with a depreciation of 2.32%.

“In Trump’s first term it seemed that he wanted to reduce the trade deficit – the objective was economic. Now the objective was to solve the immigration and drug crisis. This is important because now it is not going to move from its objective until it is on the path to solving it,” said Gabriela Siller, director of economic-financial analysis at Banco Base.

“This means that, if Mexico responds by applying a tariff, it will sacrifice part of its economic growth and inflationary pressures to achieve its objective. If this threat materializes, the exchange rate could rise to at least 23 pesos per dollar, accompanied by a contraction in exports, falls in foreign direct investment, greater pressures on the exchange rate and cuts in the credit rating,” he added.

In 2016, between the presidential election in the United States and the end of the year, the peso depreciated 13%. “If we copied that same scenario and brought it to the present, the exchange rate should be 22.70 pesos,” explained Montserrat Aldave, chief economist at Finamex.

In Trump’s first term, Siller recalled, the peso appreciated 10.71% or 2 pesos and 35 cents. The reference levels are 21.9555 pesos per dollar at the close of January 19, 2017, the day before his inauguration, and 19.6045 pesos per dollar on January 20, 2021.

However, he added, “between the close of June 15, 2015, before announcing his candidacy (15.4364 pesos per dollar) and January 19, 2017, before his inauguration (21.9555 pesos), the peso depreciated. 42.23% or 6 pesos and 52 cents.”

There is a light at the end of the tunnel, and that is that, if Trump wants to maintain the trade war with China, he will need Mexico, which has become his main trading partner and main supplier of goods.

“This may help these tariffs be imposed, but temporarily. In 2018 the tariffs lasted less than a year,” said Janneth Quiroz, director of economic, exchange and stock market analysis at Monex.

Why does the market react to threats?

We already know what Donald Trump is like, that he does not comply with everything he says, however, the markets react because they are “speculative and will react to any threat,” said Humberto Calzada, chief economist at Rankia Latin America.