Mexico travel takeaways

Summary

The International Economic research team recently traveled to Mexico to meet with a range of market participants. During our visit, we discussed topics such as U.S. tariff policy and economic conditions with local policymakers and corporates, and in this note, we summarize the key takeaways of those conversations. We are also making adjustments to our Banxico forecast as well as our long-term Mexican peso outlook to reflect our new perspective.

Mexico travel takeaways

No public nor private sector entity we engaged with believe direct tariffs will be imposed on Mexico. Tariffs are top of mind for local policymakers and businesses. With that said, no one we spoke with believes the Trump administration will impose the proposed 25% tariff when the 30-day delay expires in March. Also, the consensus during our conversations was that direct tariffs would be avoided over the entirety of the Trump administration. All take the view that tariff threats and escalations are the same negotiating tactics used during Trump's first term in an effort to receive larger concessions. As far as what those concessions may be, our counterparts suggested immigration and drug security are most important to the Trump administration. We shared our view that border control and disrupting the cross-border flow of narcotics are important, but ultimately part of a larger strategy aimed at countering China. In that sense, we shared our belief that Trump is taking aim at Mexico in an effort to shape Mexico's geopolitical and economic relationship with China, and integrate Mexico more with the United States instead of shifting toward China. Attempts at reconfiguring the Mexico-China relationship may include creating incentives for Mexico to purchase U.S. goods rather than Chinese products, reject Chinese foreign direct investment and create an overall dynamic where China is the common foe of both the U.S. and Mexico. We raised the possibility of Mexico shunning those U.S. attempts and forming a closer alliance with China, which all local peers strongly pushed back on. One corporate shared their view that the U.S. escalating trade threats as well as designating cartels as terrorist organizations and stepping up military surveillance of narco groups was preparation for a U.S. invasion similar to the mid-1850s. While impossible to know for certain, we expressed our doubts the Trump administration is laying groundwork for military intervention in Mexico.

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