The Latin American Report # 382

The Truth Social's nightmare

The Donald Trump effect has been strong again since last Monday night after promising once again—via Truth Social this time—to apply 25% tariffs to all Mexican and Canadian products, and to charge an additional 10% to Chinese ones. The three countries are the top suppliers of goods to the U.S. economy, with crude oil trade also being compromised—by the way, Mexican crude oil exports to the U.S. registered a record low last week. The Canadian case is very interesting because, among so many elements that can be cited, nearly 40 U.S. states have Canada as the main destination for their exports. Ottawa is already deliberating possible retaliatory measures, as is Mexico. The Mexican peso, which has been suffering in recent weeks amid doubts about an enacted (controversial) judicial reform, and then Trump's threats, recorded its worst performance against the dollar in two years. It recovered some ground today closing in the green with +0.23%, according to Reuters. Big companies such as General Motors lost between 2.5% and 3.3% in premarket trading yesterday, as their supply chains are connected to both Mexico and Canada. The same happened to Japan's Honda and Taiwan's Foxconn. The former, which sends 4/5 of its Mexican production to the United States, saw its shares falling to a 4-1/2 month low, while the electronics contract manufacturer giant, currently engaged in the construction of a Mexican factory in alliance with Nvidia, fell to its worst numbers in two months.

The increase in tariffs—more aligned with the interests of local producers—is a plausible cause for an increase in inflation, it is noted, but I do not believe that the latter collides with the agenda that Trump promoted in his campaign. The Mar-a-lago-based showman committed himself to hitting hard with tariffs. Whether Americans punished Democrats for inflation is another discussion. So for me, it is not a contradiction on the Trump side, at least here. “Tariffs distort the marketplace and will raise prices along the supply chain, resulting in the consumer paying more at the checkout line,” said the president of a Washington trade group. AP notes, "Mexico supplied 51% of fresh fruit and 69% of fresh vegetables imported by value into the [United States]”. Some experts point out that “Trump's tariff talk was a negotiating tactic, a threat rather than a promise”. Yet even without running the daily business in the West Wing again Trump's threats have been very much heeded in Mexico, which during the Morena-ruled cycle has been very jealous of its sovereignty and independence.

The MAGA chief narrative to defend more tariffs focuses on Canada and Mexico not doing enough to stop irregular migration and drug trafficking—the deadly fentanyl is key here—, and also points to “unfair practices of foreign companies and foreign markets”—a "veiled" reference to China, for sure—jeopardizing the U.S. economy. By the way, some Canadian politicians are hurt that Trump has lumped them in with the Mexicans on these issues. The Canadians themselves are pressing Mexico with harsh rhetoric because of China. “On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump wrote via Truth Social, arguing that ”thousands of people are pouring through Mexico and Canada, bringing Crime and Drugs at levels never seen before.” “Mexico and Canada have the absolute right and power to easily solve this long-simmering problem. We hereby demand that they use this power, [...] and until such time that they do, it is time for them to pay a very big price!”, he concluded.

Mexico tries to fight back

President Claudia Sheinbaum responded to Trump with a letter defending the most recent immigration record—with an ideological poke as she stressed the need to put more dollars into development policies and less into wars—and returning the “fentanyl” ball to the US court, arguing that the basis of the problem is in the American consumption—so Mexico “[helps] for humanitarian reasons”. In any case, the growing U.S. demand is paid for with Aztec blood, Sheinbaum expresses in her letter, in which she also recalls that the United States is the main source of weapons smuggled in to boost the cartels' firepower.

Regarding the discussion on trade relations with China, the head of Zócalo Square says that the main exporters from México to the United States are precisely companies such as General Motors, Stellantis, and Ford. In this regard, the Mexican government has also argued that China's investment levels are relatively low compared to those of North America. Trilateral trade between Mexico, Canada, and the United States was valued at $1.78 trillion at the end of the third quarter of this year.

“To one tariff will follow another in response and so on, until we put our common businesses at risk,” Sheinbaum warned. “Escalating trade retaliation would only hurt the people's pocketbooks and is far from solving underlying problems,” Mexico's lower house leader said. “It's a shot in the foot,” AMLO's former foreign secretary and now Sheinbaum's economy secretary Marcelo Ebrard said today, Wednesday. He projected the loss of some 400,000 U.S. jobs, hitting particularly hard at companies such as those referenced in Sheinbaum's letter. “Mexico does not want conflicts and divisions, but to build a stronger region,” Ebrard added. Meanwhile, Brazil is rubbing its hands together. We will keep a close eye on this development, which is in its early stages.

_{Sheinbaum spoke with Trump this Wednesday along with her foreign minister (source).}

And this is all for our report today. I have referenced the sources dynamically in the text, and remember you can learn how and where to follow the LATAM trail news by reading my work here. Have a nice day.

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