Donald Trump’s recent victory in the US elections would significantly affect the economic and financial stability of several Mexican states, especially those that depend on foreign trade, remittances and foreign direct investment (FDI), Fitch Ratings warned on Friday.
The protectionist policies that Trump has promoted before and the possible revision of the Treaty between Mexico, the United States and Canada (TMEC) pose considerable risks for border states, such as Baja California, Coahuila, Chihuahua, Nuevo León and Tamaulipas, all highly dependent on exports to the US, according to the report ‘Potential Impacts of Trump’s Victory in Mexican States’.
The rating agency stressed that, in a scenario of higher tariffs and trade barriers, the competitiveness of Mexican products could be affected, limiting the collection of local taxes and economic activity in general.
FDI could also be impacted, according to Fitch, as the political and economic uncertainty following Trump’s victory could discourage new investments in Mexico, especially in relocation or ‘nearshoring’ projects that favor the transfer of companies to the country.
Baja California, Mexico City, Nuevo León and San Luis Potosí, important destinations for US investment, could experience a reduction in future projects if Trump’s policies promote the repatriation of manufacturing production to the United States, it considered.
“More restrictive fiscal and regulatory policies could also make investing in Mexico less attractive,” Fitch indicated.
Impact on remittances
In addition, it pointed out that Trump’s immigration policy could impact the inflow of remittances, vital for states in the south of the country such as Chiapas, Guerrero, Michoacán and Oaxaca.
Read: Americans would pay the price for Trump’s protectionism: S&P Global
Fitch Ratings warned that the decrease in remittances would affect the consumption and financial stability of families that depend on these resources.
It would also translate into lower internal demand and greater pressure on social spending, as state governments would have to reinforce support programs for vulnerable families, raising fiscal costs in the long term.
“This, as a result of an increase in the deportation of migrants and new settlements due to a greater containment of the flow of migrants passing through to the US from Central America and other latitudes,” it added.
Fitch Ratings warned that, given these possible impacts by Trump, some states would have to increase their debt to face the decrease in tax revenues and finance additional social spending.
This would compromise fiscal sustainability in the medium term and make investments in infrastructure projects difficult.
Fitch Ratings noted that, although the final impact will depend on bilateral decisions and cooperation between the governments of both countries, the risk to Mexico’s economy is real.
It confirmed that it will continue to monitor the Trump administration’s policies and their impact on the credit quality of Mexican states.
Source: forbes
