The Mexican peso is getting clobbered after Donald Trump’s victory in the U.S. presidential election.
The country’s currency hit a new record low as votes were being tallied, suffering an 11% drop. By early Wednesday morning, the peso regained some ground but it was still down more than 9%. $1 was worth just more than 20 pesos — a territory it had never traded at before.
The reasons for this flight from the peso are based around the fear that the new Trump administration will adopt protectionist trade measures to reshore US jobs lost to globalization.
The US is Mexico’s biggest trading partner and President-Elect Trump has mentioned imposing duties on goods entering the US manufactured in Mexico; canceling the NAFTA Free Trade Agreement; taxing cash remittances from the US to Mexico; building a wall on the US southern border and repatriating illegal Mexican immigrants.
About 30% of Mexico’s economy consists of its exports, and almost all of those are sent across the border. Plus, the Mexican economy is already dealing with a litany of headwinds, such as low oil prices and government spending cuts.
The only positive from this post US election reaction in Mexico is that a weaker peso should make Mexican exports – including leather and footwear – more competitive just as BREXIT made the UK’s exports more competitive as the pound sterling fell.
Sources Bloomberg and CNN Money
BY RICHARD SMITH
