The new year has started on a decidedly depressing note both internationally as well as nationally: Donald Trump unleashed a veritable tweet-storm on Tuesday, January 2nd which has worrisome implications for us as well as for the international community. He started out by congratulating himself on the passage of his tax reform law which reduces the U.S. corporate profits tax to a maximum level of 21% and will make investment in the U.S. much more attractive for foreign corporate investors than, for example, in Mexico which maintains a now uncompetitive level of 30%. With this new reality, we could stand to lose a very substantial amount of direct foreign investment unless we level the playing field by enacting a comparable tax reduction and do it expeditiously! The effect has been immediate: the Peso has dropped to 19.50 against the Dollar and is expected to fall to absolutely worrisome levels if, as is expected, Trump withdraws his negotiators from the unproductive process of renegotiating the NAFTA Agreement in the coming months. Added to this scenario is Trump’s latest tweet condemning the Democrats in Congress for doing nothing to legislatively protect the interests of the so-called Dreamers – in the case of Mexico 800 000 youngsters who arrived in the U.S. as small children with their undocumented parents. Trump insists on linking any legislative help for them to the approval of 1.6 billion Dollars for the construction of his border wall and authorization to tax the 28.5 billion Dollars in remittances flowing from the U.S. to Mexico. Should that prove impossible to achieve, we need to prepare ourselves for the arrival in March of 2018 of these 800 000 young people looking for employment that simply does not exist …
Iran, which is experiencing a comparable problem of youth unemployment and a stagnant economy, was the focus of yet another tweet encouraging more violence in the ongoing bloody demonstrations against the government of the ayatollahs. As if that weren’t enough, Trump tweeted only days after Kim Jong Un of North Korea said he’d be open to dialogue with South Korea: “… Kim Jong Un just stated the “Nuclear Button is on his desk at all times” – Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button Works!” Leaving the obviously deranged Freudian implications aside, let us now direct our attention to Mexico and the new year: Precisely a year ago our exchange rate against the US dollar was at levels of 21 pesos per dollar approximately. At that time, the exchange and business markets reflected their nervousness before the arrival of Trump to power, well, now is not the exception as the Mexican peso is facing a new challenge as is the pressure exerted by the tax reform of USA. On the last days of December 2017, the dollar came to be quoted above $ 21 pesos. In that sense, a mirror reform was expected in Mexico but apparently that is not going to be the case. The only immediate action that the federal government made was to auction dollars through the Central Bank that brought a slight incentive to the peso to position it at an exchange rate of $ 19.50. This shows us that our country is still very vulnerable to international phenomena and that it exposes the lack of competitiveness and leadership in all senses. What is expected for this year? For a very complicated economic scenario and for the moment, apart from the exchange rate, there are two other phenomena that call our attention: the accelerated growth of inflation and the renegotiation of NAFTA. In the first case, the fiscal policy implemented by the Bank of Mexico, following in the footsteps of the FED, did not have much effect on the increase in prices, which is why it is very likely that, as an urgent measure, interest rates will increase again to stop the growth of the economy unless the same market regulates the economic activity derived from the end of the holiday season and the discouragement of the population before an unpromising electoral scenario. Regarding the renegotiation of NAFTA, as we know, it has not yet ended but it is clear that the USA continues with the idea of fulfilling its initial purposes. It is expected that the last stage in Washington is the most complicated but at the same time it will make it very clear how the commercial policy should be designed before a new government for our country.
