As Trump Takes Stage, Mexico's Peso Tanks

The Mexican peso hit an all-time low against the dollar Wednesday shortly after President-elect Donald Trump took the stage, reports Reuters, falling to 22 pesos on the dollar. The peso was already in freefall, dropping 2% on Tuesday and almost 16% against the dollar since Trump's election victory amid fears that his administration will renegotiate the North American Free Trade Agreement. The thinking is that such a move would bring tariffs against Mexico—which sends 80% of its exports to the US—sparking a recession, reports the Wall Street Journal. The dip would have been greater if Mexico's central bank hadn't sold $2 billion in dollar reserves last week, per Reuters. But a former Mexican finance minister adds further depreciation is "almost inevitable." Inflation also hit its fastest pace in two years in December.

"A renegotiation of NAFTA would basically kill Mexico's growth model," says an economist, adding strict trade terms could shrink Mexico's economy by 3.3% this year after 2.1% growth in 2016. "Trump is manipulating Mexico's currency through his tweets—against the US interest," adds a former Mexican trade official. He argues a declining peso could mean less Mexicans buying American goods and more illegal immigration across the border. The peso also plunged in 1995, when Mexico received a $12.5 billion loan from Washington, since repaid. But "Trump has a very adversarial relationship with Mexico and would likely be much less cooperative in terms of bilateral aid," a strategist says. (Mexico's leaders are still scoffing at Trump's "stupid" wall.)