Muy Bueno Para South Dakota
(from NY Times)
noting that the Peso "is one of year's best performing currencies" and "likely has more room to rise." Why? Because it's all about the North American Free Trade Agreement (NAFTA).
Considering everything--"everything" being the nonstop vitriol that President Trump has thrown at NAFTA since before he was elected--Mexico's resilience has been remarkable. I believe it bodes well for South Dakota's prospects in terms of maintaining a profitable relationship with our customers south of the border. Mexico is the 2nd biggest buyer of South Dakota's exports, mainly consisting of meat and farm goods, to the tune of nearly $400 million a year. Trump's main vehicle for punishing Mexico because of his misunderstanding of our trade balance with that country has been NAFTA, which came into being in 1993. He has repeatedly threatened to drastically renegotiate the deal or walk away from it altogether. Currency traders, by buying Pesos as a vote of confidence in Mexico, think this is more talk than action.
The NAFTA treaty is in a renegotiating phase right now, and it shouldn't come as much of a surprise if the final agreement has some politically face-saving cosmetic rearrangements that the Trump administration will tout as one of its "wins." And the occasional politically-driven outburst against it can be expected. But a drastic overhaul or total dissolution altogether? Not very likely. President Trump himself just begged off his hardline stance, telling CNN Money a month ago "I'm leaving it a little flexible . . . there's no rush." Read another way, I think the President means that he's come to realize what a great deal NAFTA has been to big segments of the American economy and that making a hasty decision about it would be headstrong and fruitless. South Dakota ag producers should certainly breath sighs of relief if the status quo with Mexico remains relatively untouched. Considering that Trump's "no rush" declaration is based on a negotiating timetable adjusted to suit this summer's Mexican presidential election, American farmers can take any real NAFTA readjustments to be on hold, probably through the current crop year.
As we come into our own congressional elections in November, the White House also knows that a radical change in NAFTA will anger some important constituencies. CNN Money notes that "millions of jobs in red states like Texas and Arizona depend on free trade." The Farm Bureau says that nearly 9% of South Dakota's jobs (about 40 thousand) are NAFTA-dependent.
Given all this, it's no surprise that prospects for Mexico's economy and currency are good this year. Better yet, South Dakota stands to benefit as the Trump administration sets rhetoric aside and focuses on reality.