Three key economic flows to Mexico at risk from Trump

As markets gauge whether president-elect Donald Trump will follow through on his vow to slap tariffs on all US imports, Mexico is watching keenly. America's southern neighbor surpassed China to become the top exporter to the US last year, benefiting from "nearshoring."

Indeed, Trump has suggested Mexico could face some of the stiffest levies - from 25% to 100%. That compares to a 60% minimum tariff proposed on Chinese imports, and 10-20% for other countries.

In this context, we have charted three international money flows that are key to the Mexican economy and heavily depend on the relationship with the US: foreign direct investment (FDI), remittances from Mexicans working abroad, and exports.

Interestingly, trade with Mexico kept expanding during Trump's first administration - roughly in line with the long-term trend in our chart. From January 2017 to January 2021, Mexican exports—most of which go to the US—rose by 10.5%, as measured by a 12-month rolling sum. Under Biden, however, that pace definitely accelerated; as of September of this year, exports had jumped by 45.8% on that basis since the outgoing US president took office.

FDI to Mexico, however, declined under Trump - shrinking 19.6% between Q4 2016 and Q4 2020. To be sure, all of that decline took place during the pandemic disruptions of 2020. But even pre-Covid, the trend under Trump's presidency was flatter than the long-term trajectory for FDI. Global foreign investment to Mexico under the Biden presidency rose 25%, lifted by the post-pandemic recovery year of 2021.

The final flow to consider is the net secondary income in the balance of payments – which is primarily composed of money that Mexican nationals send home from other countries. Net secondary income increased by 130% between Q4 2016 and Q2 2024.

These workers overwhelmingly reside in the US. With Trump's promise to pursue mass deportations of undocumented immigrants, this flow of international transfers may also be at risk.

Our second chart looks to the currency market to assess the outsized threat to Mexico versus its Latin American peers. From July 1, the Mexican peso has depreciated about 10% - even more than its equivalent in Argentina, a country battling hyperinflation.

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