Donald Trump’s presidency has gotten off to a rocky start, with turmoil at the most senior levels of his administration forcing reality Apprentice-like last-minute searches for a new head of the National Security Council to replace a Russia-tarnished Michael Flynn.
But the top-level personnel changes forced on by Trump’s brusque management style have not limited themselves to his own government. Witness Mexican President Enrique Pena Nieto’s unusual request that the head of the central bank, the crisis-tested Agustin Carstens, stay on a little longer to manage the peso’s volatility and other economic issues.
Mexico’s economic policy has long been hostage to outside factors, including every turn of the US presidential campaign, where the peso suffered every time Trump’s victory appeared more likely, to Federal Reserve policy, whose tightening prospects have added to the currency’s challenges.
The Mexican peso has hit repeated record lows against the dollar since Trump’s shock electoral victory, ironically boosting the very export manufacturing sectors that Trump and his team argue, erroneously, are stealing American jobs. The peso has rebounded around 7% since Trump took office, but that has only added to uncertainty about the future.
In fact, the 1994 start of the North America Free Trade Agreement (NAFTA), much maligned in the latest presidential campaign, had little perceptible effect on US manufacturing employment. Instead, competition with China and automation have been key drivers, with the latter playing an ongoing role in the reduction of manufacturing labour. These jobs are never coming back to America’s Rust Belt, no matter what Donald Trump or any politician says.
Never mind the facts. Trump has not been shy about blaming Mexico, without evidence, for all manner of things from rising crime to high unemployment, which by the way is actually not very high at all — the current rate of 4.8% is close to historic lows, even if that masks some underlying weaknesses. He has vowed to build a wall across the Mexican border to keep out “bad hombres” and promises to slap goods coming in from Mexico with tariffs, or as his team prefers to call it, a “border adjustment tax.”
Trump has also not been shy about strong-arming companies into at least pretending they are keeping jobs and factories in the US, even if, for many, such decisions seem largely independently of the president’s influence.
Amid all the uncertainty, Mexico’s Carstens was set to take over a new position as General Manager of the Bank for International Settlements. But that appointment has also been delayed.
A new member of Mexico’s central bank board, Alejandro Diaz de Leon, told Bloomberg in an interview on February 20 that the central bank’s series of interest rate increases over the past year had helped blunt the effect of the crashing peso.
He warned policymakers must be prepared for the economy to slow further. As it is, Mexico will struggle to achieve a 2% rate of growth this year, according to prevailing forecasts.