Upcoming U.S. Election's Potential Impact on Mexico

Investing.com — The upcoming U.S. election could have significant ramifications for Mexico, particularly regarding trade policy, tariffs, and overall market dynamics, according to JP Morgan.

More specifically, the outcome of the election could drastically influence Mexico’s economy, especially in areas of international trade and foreign policy. The two main contenders, Vice President Harris and former President Trump, have divergent approaches, each presenting a different set of risks and opportunities for Mexico.

Harris Administration

In a "Harris 1.0" administration, Mexico may experience some advantages as concerns surrounding tariffs and trade dissipate. As JPMorgan notes, "Harris 1.0 presents an upside potential from current levels as tariff and trade fears recede."

While Harris has not extensively commented on USMCA renegotiations, her track record indicates a potential focus on enhancing worker and environmental protections, likely impacting Mexico’s export landscape.

Furthermore, the lack of a universal 10% tariff proposal during her administration could provide stability for Mexican industries that rely heavily on U.S. trade.

Trump Administration

Conversely, a "Trump 2.0" scenario could introduce heightened risks for Mexico, mainly because of Trump’s assertive stance on trade policies and tariffs.

“Trump 2.0 brings increased risk on tariffs and fiscal, triggering amplified U.S. exceptionalism and broad USD strength if Congress is also won by Republicans, which is largely viewed as the most negative outcome for Mexican equities at least in the short-term,” explained JPMorgan strategists.

Trump’s proposed tariffs, including a 10% global tariff and a 60% tariff on Chinese imports, would require renegotiating key USMCA provisions, which could damage Mexico’s trade relations and elevate market volatility. The implementation of tariffs on auto production in Mexico by Chinese manufacturers could particularly disrupt the Mexican automotive industry.

Immigration and Security Issues

Immigration and security also remain critical considerations. Trump has indicated a stricter immigration policy, proposing mass deportation initiatives that could heighten tensions between the two nations.

In contrast, Harris’s focus on addressing the root causes of migration could lead to reduced tensions along the border and foster a more stable bilateral relationship.

Currency Markets and Outlook

The election outcome is projected to influence currency markets as well. JPMorgan strategists have adjusted their outlook on the Mexican peso (MXN) from Overweight (OW) to Market Weight (MW), acknowledging that a Trump 2.0 victory could weaken the MXN amidst increasing tariffs and trade risks.

Despite this, strategists suggest that the election may not severely impact Mexico in the mid-term. They argue that concerns over local policy risks in Mexico are likely overstated, and that with diminishing political uncertainty, the outlook for the MXN could improve.

“Hence, they are biased to look to re-engage in bullish MXN trades after the US election,” they stated.

Additionally, JPMorgan notes that currency movements are crucial in affecting equity market performance post-election, especially when there are unexpected outcomes, although these effects usually correct over time.