Post-election uncertainty over NAFTA weakens peso, hits border businesses

In the 43 days since November 8 Donald Trump’s election has already begun to affect the Mexican economy, and it’s hitting El Paso too.

“Usually when the peso is undervalued against the dollar it recovers once it becomes clear there is not going to be a recession or another financial crisis. That was not the case this year according to our survey respondents, they anticipate that the peso is going to remain undervalued for an extended period of time,” Dr. Tom Fullerton, a UTEP economics professor said.

The weak peso is what hits El Paso businesses, making it more difficult for Juarez shoppers to spend their money north of the river.

“November I sold exactly half of what I sold a November ago, a year ago. Exactly half of it.” said Gustavo Tavera, who owns a store downtown that relied on Juarez shoppers.

Tavera calls downtown businesses the heart of El Paso, but the punches have been too much. He’ll close one of his stores once Christmas is over.

“It’s almost time to close the business. It’s almost time to–from six workers, just to have one. The rents are so expensive, the workers, it’s… no money left to pay bills,” Tavera said.

The effects go beyond downtown stores and stores depending on Juarez shoppers.

It’s not necessarily a Trump presidency that is hurting the Mexican economy and peso this much, but Trump’s unpredictability when it comes to the decisions he will make.

“The uncertainty in trade relations between the two (countries) is causing the uptick in direct foreign investment that normally occurs when the peso is weak to not materialize this year,” Fullerton said.

That uncertainty centers around whether companies that decide to invest in Mexican manufacturing will be able to easily and cheaply bring their goods into the US.

“If trade relations between these two countries are disrupted it will cause a lot of problems within Mexico because about 80 percent of the exports of Mexico come to the United States,” he said.

Mexico isn’t the only one to be affected by this blow to the economy south of the border. If Trump decides to withdraw the US from NAFTA or renegotiate the deal it could mean companies would be less free to move goods from one country to another, and it could cost the country.

“Historically any time the US economy is allowed to operate more efficiently it always responds with more business opportunities, more jobs, and higher incomes” Fullerton said.

The effects won’t be short-lived.

“Investment flows into Cd. Juarez have probably declined and will probably remain depressed at least during the bulk of 2017,” Fullerton said.

As El Paso usually provides support infrastructure for Juarez manufacturers, Juarez taking a hit could lead to city-level effects.

“At present most of the regional economic forecasts call for a slower growth in Cd. Juarez next year, accompanied by relatively moderate rates of growth in certain sectors here in El Paso that are involved with international commerce,” Fullerton said.

While internationally tied industries will probably be slowed down, Fullerton says the city itself will be able to pull through.

“Domestic economic outlook within the United States fortunately it’s looking fairly favorable, and that is going to help out a lot of the sectors here in El Paso,” he said.