I wrote earlier today that Mexican President Pena Nieto “won the pot” after playing a round of international poker with President Donald Trump. Not so fast, said many people on the Internet, because Trump still has plenty of cards to play.
What could possibly force the Mexican government to pay up to $14 billion to finance a wall to keep its own citizens in, a la East Germany, is beyond me. But every time Trump speaks or tweets about Mexican trade, or the wall, the peso goes nuts. Mexican traders have lost billions, and the government has spent billions to shore up the currency.
Trump decries China for currency manipulation. But China’s economy is roughly within striking distance of the U.S., depending on what currency and GDP growth predictions you use. Mexico’s GDP is less than 10 percent of the U.S., with a per capita value of around $10,000 (to the U.S. $53,000).
This is currency manipulation, pure and simple. If Trump can’t get Mexico to pay up for a wall it doesn’t need or want, he will punish them by making outrageous statements like threatening a 20 percent duty and then walking it back.
The talk of border tariffs reinforces the negative outlook for the peso, for now, said Win Thin, senior currency analyst at Brown Brothers Harriman.
“The market has gotten a little more balance, but I think it’s (dollar) loaded for another move higher,” said Thin. “I’m kind of confident that the dollar is going to head higher and I’m very confident we’re going to have gyrations both ways…I still think things are negative for Mexico and nothing’s changed. Tariffs are never good.”
The peso recovered a bit after Spicer discussed a tax on Mexican imports but was still lower on the day. Jaime said he estimates the market is already pricing in a border tax, at about 16 percent, at current levels. “In our assumption expectations about Trump policy would imply a border tax of about 16 percent,” [Andres Jaime, global foreign exchange and rates strategist at Barclays] said.
Bullying our smaller neighbors in an immigration battle is pretty wrong and hypocritical when Trump accuses China of doing the same thing for other reasons. I suppose this is the way America gets to win.