1/27/2016 The Wall Street Journal
Once again let’s begin with the latest from the White House as we witness the beginning of a trade war with Mexico. Yesterday’s news regarding the “great wall” didn’t sit well with Enrique Peña Nieto who promptly cancelled the meeting with Trump. While the Mexican leader’s domestic popularity is extremely low, standing up to the US is scoring him points.
Trump’s response was to float a 20% import tariff on Mexico – among other proposals. Needless to say, the Mexican peso reversed its rally on the news.
As discussed before, this situation could get rather ugly. A recession in Mexico can backfire for the US – including bringing more of what the “great wall” is trying to prevent. Moreover, the supply chain running through Mexico’s factories is incredibly complex and could result in disruptions and price increases in unexpected areas. We also discussed the fact that US refineries will lose their key customer.