P.s. As you may know, the North American Free Trade Agreement (NAFTA) may be on the chopping block. The President has suggested of late that termination of the agreement, at the hands of the U.S., is likely.
So, we should therefore expect "improvement" in the trade numbers between us and Mexico, right?
(By the way, the U.S. presently has a trade surplus with Canada )...
Well, for starters, I put "improvement" in quotes because, frankly, accessing net more goods from Mexico and, thus, dispensing net more U.S. dollars into the global economy -- resulting in greater foreign investment into U.S. markets (good for your portfolio, and interest rates, btw) -- is not in my estimation something to fret about. Beyond that, no, we should not expect our trade numbers with Mexico to "improve".
Scrapping NAFTA will likely (highly likely) tank the peso. I.e., suddenly U.S. goods will be exceedingly expensive for Mexican consumers, and, conversely, Mexican goods will become exceedingly cheap for U.S. consumers. If anything, it'll increase the trade deficit. Which, again, wouldn't be the end of the world -- just a shame in terms of the U.S.'s global positioning!Well, here's our chart of the day:
click to enlarge
What do you think would happen to the value of the Canadian Dollar if NAFTA is scrapped?
ReplyDeleteI suspect it would take a serious hit as well. However, Canada, presently, is in a bit better position in terms of monetary policy. Their benchmark rate sits at 1%, while GDP last clocked in at just under 4%, with inflation at 1.4% (of course NAFTA gone could notably impact both). I.e., they can attempt to stem the tide by raising rates. Mexico, on the other hand, is looking at <2% GDP, 6% inflation and a 7% policy rate. Tough to counter with monetary policy... All that said, again, the loonie I'm guessing would take a hit.
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