Economics: High risk of tariffs and trade sanctions generates investment uncertainty

MEXICO - Report 19 Nov 2024 by Mauricio González and Francisco González

The victory of Donald Trump, together with the Republican majority in both houses of the U.S. Congress, indicates that it is practically a given that there will be pressure to threaten to impose tariffs on Mexico. The aim would be to force the Mexican government to toughen measures to prevent the flow of migrants to the U.S. border. By the same token, the threat of imposing tariffs will be used to pressure the Mexican government into taking a more restrictive stance on China's investments in the country in strategic sectors, such as the automotive industry, and on trade imports coming from that country. In this context, it is important to note that the deficit that the US maintains with Mexico has been growing consistently since 2017, and given the drop in Chinese imports into the US in 2023, Mexico became the country's main exporter, representing close to 15% of total US imports.

In the recent economic indicators, Mexican industrial production registered zero growth in relation to the same month of the previous year. With this, the annual growth rate since April 2024 has been in a range between zero and 1%.

The consumer confidence indicator for October 2024 increased 2 points seasonally adjusted compared to last September. The largest increases corresponded to components of the index related to household expectations for 12 months from now. This contrasts with the business confidence index, which has suffered a significant deterioration according to its most recent data.

On Thursday, November 14, Banxico decided to reduce its target rate by 25 bp, similar to the decrease of last September´s meeting, leaving the rate at 10.25%.
Banxico maintains its opinion that the internal context is one of high uncertainty, the peso is volatile, inflation expectations for 2024 have risen, and those for next year are above the target. However, the Governing Board "expects that (the underlying component) will continue to decline."

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