Thought June 10, 2019 / 10:49 am UTC

A Crisis Averted, but Mexico’s Situation Has Not Improved

By Pedro Tuesta

The U.S and the Mexican governments reached an agreement to avoid the imposition of tariffs on Mexico’s exports. Although the worst-case scenario was avoided, for the time being, there is still a cost for Mexico.

There is little new in terms of demands from the U.S. government that Mexico did not already previously accept. Mexico agreed to deploy its national guard, with focus on its southern border, but such action was already accepted back in March, the only change being a 10% increase in the force to be deployed. Mexico also agreed in December to keep asylum seekers in the country while their cases proceeded in the U.S. 

Despite what President Donald Trump says, Mexico did not agree to buy more farm products from the U.S., nor did they accept to become a “safe third country.” Both conditions would have put Mexican finances under stress, as building structures would have forced the delay of other programs. 

The agreement is positive for Mexico. The caveat is that it is an open-ended agreement where unspecified metrics have to be met or negotiations will start again. While the major impact has been averted, there is still the issue of further pressure on an already stretched out budget to increase security and provide jobs, health and housing services to migrants. In that scenario, President Lopez Obrador may see his agenda trimmed. Currently, that has little impact on his political standing but could hurt him in the midterm elections when the house and a third of the Senate are renewed. 

In short, while this is positive in the short term, there is a fiscal impact to be considered and there is no guarantee the subject will not resurface at any time. 

4Cast Ltd. and all of its affiliates (Continuum Economics) do not conduct “investment research” as defined in the FCA Conduct of Business Sourcebook (COBS) section 12 nor do they provide “advice about securities” as defined in the Regulation of Investment Advisors by the U.S. SEC. Continuum Economics is not regulated by the SEC or by the FCA or by any other regulatory body. This research report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Nonetheless, Continuum Economics has an internal policy that prohibits “front-running” and that is designed to minimize the risk of receiving or misusing confidential or potentially material non-public information. The views and conclusions expressed here may be changed without notice. Continuum Economics, its partners and employees make no representation about the completeness or accuracy of the data, calculations, information or opinions contained in this report. This report may not be copied, redistributed or reproduced in part or whole without Continuum Economics’s express permission. Information contained in this report or relied upon in its construction may previously have been disclosed under a consulting agreement with one or more clients. The prices of securities referred to in the report may rise or fall and past performance and forecasts should not be treated as a reliable indicator of future performance or results. This report is not directed to you if Continuum Economics is barred from doing so in your jurisdiction. Nor is it an offer or solicitation to buy or sell securities or to enter into any investment transaction or use any investment service.
Analyst Certification
I, Pedro Tuesta, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.