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Posted by BajaInsider on January 12, 2017
  • A wordless New York Times cartoon depicting Trump taking over the White House popular in Mexico
    A wordless New York Times cartoon depicting Trump taking over the White House popular in Mexico

Update January 12, 2017 It has been a scary week for the Mexican economy, protests across the nation and the peso setting record lows falling to 22:1 against the dollar. As of the time of authoring, the peso had gained back a little to 21.87 just a slight fall from 21.28 60 days ago. Although the biggest threat to the health of the Mexican economy remains proposed trade changes that may come with the new president in the weeksahead, we now have very real economic forces pushing the value of the peso downward. This week as Mexico is bracing for "Trumpact" and changes the new American president will inflict on the country it is also adjusting to dramatic changes in fuel costs and future fuel policy.  With trade restrictions, slowing economy and rising fuel prices the Mexican economy is going to face a challening 2017.

For information on how to change your dollars to pesos for the best value on your trip to Mexico click here

All of this isn't so wonderful for Mexico's northern neighbor either. Mexico is the US's third largest trading partner, which means they not only sell things to the US but buy the 4th largest quantity of US made products. The cost of US made products in pesos has risen more than 65%, making them non-competative in not only Mexico but many places around the world. This trade imbalance will eventually come home to roost on the US economy.

It all began June 1, 2014. The original edition of this article was posted here a few more days than two years ago in December of 2014. The seemingly endless rise of the dollar against the peso had begun, along with nearly every other world currency on June 1, 2014. Particularly hard hit were the currencies of oil-producing nations including Mexico. It was an economic war, caused by the overproduction of crude oil by the US and Saudi Arabia. The most likely intended victims were Russia and Iran, But there have been a lot of collateral damage countries, including Brazil and Mexico.

There were several dips of the peso against the dollar throughout the US presidential campaign. Hillary sneezed, her health became a social media questions and Trump's threats against NAFTA became more possible and the peso crossed the 20:1 rate.

On November 15, 2016, the Bank of France made projections that the policies put forward by president-elect Trump would result in more than a 40% reduction in Mexico's economic growth in 2017, taking it down from 2.8% to 1.6%, this projection caused further instability in the peso.

On January 1, 2017, the price of gasoline and diesel rose significantly. Mexicans refer to this as "Gasolinazo", roughly meaning being screwed by gasoline prices. Regular gasoline rose as much as 18% here in Baja and premium and diesel rose as much as 24%.

This caused widespread demonstrations across Mexico, blockage of highways and Pemex facilities and on the Mexican mainland, it resulted in the looting of more than 400 stores and 1500 arrests. Here in Baja, a protester rammed his vehicle into a barricade and group of police, resulting in the serious injury of one officer at the Rosarito Pemex Distribution Facility. There were spotty closures and shortages, particularly in Mexicali. Roadblocks continued into Tuesday the 10th in Baja California Sur, of the Pemex facility and the route to the major port of Pichilingue. But no shortages or violence was reported.

On January 5, 2017 President Nieto addressed the nation and tried to provide as he described it, an "ample answer". He explained that the price increase was necessary to avoid the government having to subsidize fuels and incur a significant cost that would either reduce social programs or increase the national debt. It was caused by a 56% rise in the world cost of crude in the past 12 months and 60% of Mexico's gasoline is imported. That's all well and good, true but not, as Mexico's crude costs about $10 a barrel to produce and the market is trading now around $50.

The REAL cause is the 67% fall of the peso against the dollar since June of 2014, and 22% this year. Oil has replaced gold as the trade standard and that trade standard is priced in US dollars. In January of 2016, a barrel cost $33.62 USD or at 17.85:1  or $600 pesos per barrel. On December 30 past oil cost $53.72 or at 21.5:1 $1155 pesos per barrel. That is a 63% increase in dollars and a 92% increase in pesos.

It is easy to understand why Mexicans protested when the increase means about two days minimum wage pay in a single tank of gas. I think it could have been handled more softly to the public, but I think federal accountants wanted to finish out 2016 without the economic effect of Gasolinazo hoping they will be able to absorb the pain in 2017.

January 10, 2017, the Secretary of Transportation announced the vehicles still blocking Mexican highways later that day would be subject to loss of their federal transport licenses. Although road blockages dried up in most places across the nation, protests continued into the week.

January 20, 2017, This could be a pivotal date in the relations between the US and Mexico with the inauguration of Donald Trumpas president of the US. Look for the peso to take more hits in the closing weeks of January. 

February 3, 2017, will bring the next fuel price hit is now just weeks away, when prices will be allowed to go free-market in much of the country and the price of fuels in remote rural locations (like central Baja) could see prices soar. The rumors are it will be another 9-10%.

The liberalization of fuel prices will also allow other fuel providers to compete with Pemex in Mexico and we may see Gulf station in Baja soon. But they aren't making the big investment of coming to Mexico to give away gasoline. Mexico and particularly Baja have established themselves as a 'premium market', much like the Southern California area.

The average price of fuel in San Diego today is $2.85, and taxes account for 20% of that in California so the gasoline is costing $2.26 a gallon. Now Mexico has a gas tax and adds another 16% for IVA, bringing the bite to a whopping 45%. That same gallon of San Diego gas would cost $3.29 a gallon in Tijuana, that would be another 9.6% increase. Then add the cost of delivery down the peninsula and I wouldn't be expecting a white knight of a gasoline price come thundering across the border anytime soon. 

Mexico has enjoyed a relatively low inflation rate of 4% for the last few years, an accomplishment for a country with an expanding middle class and developing the economy with a GNP growing at about the same rate. But now the increased price of fuels will cause a ripple effect across the economy, An increase in inflation and a decrease in production caused by costs and protests in the first quarter will bring more bad economic news and yet another reason for the peso to fall. With another fall of the peso, fuel will rise again.

But the gravest threat to the Mexican economy will change in policy by the new US president. The cooperative Canadian/US/Mexican policy of the past 25 years has been a healthy and happy economy makes good neighbors. In fact, the number of Mexicans illegally in the US has fallen so dramatically that 6 years ago Mexico instituted a program to repatriate Mexicans returning from the US. Why? Because the Mexican economy presented opportunity sufficient to encourage immigrants to return home. The number of Central American immigrants has soared. A more historically effective deterrent to immigration is sharing the wealth and expanding economic development to more countries in the Americas. Walls, on the other hand, have been just as historically proven ineffective.

Would the US vacating NAFTA would provide a significant hit to Mexico? The biggest exports to the US from Mexico are autos and auto parts. Mexico was forecast to become the world's third largest auto manufacturer by 2020, we'll see how that falls out now. The second largest export is agricultural products. Where those cars are made isn't going to change in the next couple years and North Americans will still want January tomatoes. So who will really pay for additional import taxes from NAFT or the proposed wall? US consumers that's who. It won't cost any less to grow a tomato it will just cost you more. Mexico isn't going to write Donald a check for the wall, that has been made perfectly clear.

Mexico isn't wasting any time exploring options to trade. Beginning back in November of 2016 trade officials I had contact with were already exploring the opening of trade with China, to replace business that Trump's policies may cost the country. Banking officials have prepared a financial reply to the president elects threat to impede cash transfers to Mexico, making it unilateral, affecting millions of Americans living in Mexico.

Assistance for all strugging oil producing nations, many of whom a re friends of the US, would be to slow US oil production and allow oil prices to rise above $68 a barrel. This would be enough to provide relief to Mexico, Brazil and Venezuela right here in our own hemisphere. 

Hopefully, all the saber rattling of the campaign will settle down and the reality of Mexico and Canada being the best of neighbors to the US and more rational thought will be applied to the relations between the three nations.




  • Many on both side of the border are unaware that the opening of petro markets is part of NAFTA's benefits to the US
    Many on both side of the border are unaware that the opening of petro markets is part of NAFTA's benefits to the US
  • Mexico has made it equally clear they will not foot the bill for what is known as Trump's Folly
    Mexico has made it equally clear they will not foot the bill for what is known as Trump's Folly
  • Mexico's president Nieto saying: "Enjoy Sirs, it is now or never." reflecting on the opening of the petro market in Mexico
    Mexico's president Nieto saying: "Enjoy Sirs, it is now or never." reflecting on the opening of the petro market in Mexico
  • Trump's foreign policy likened to a bull in a china shop.
    Trump's foreign policy likened to a bull in a china shop.


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