Despite his rhetoric indicating otherwise, US President-elect Donald Trump will not likely have a significant impact on Mexico or the rest of Latin America, according to a new report from Paladin Realty Partners.
“While the selection of Trump’s team and its ultimate policy agenda will unfold over time, it would appear that concerns regarding the potential impact on Mexico and the rest of Mexico are likely overstated,” the Los Angeles-based real estate fund manager wrote in a commentary, “Latin America Research: Positive Political Winds of Change,” released this week.
Although Trump has vowed to renegotiate the North American Free Trade Agreement (NAFTA), a complete overhaul may be challenging, the firm said: “The trade agreement with Mexico will be difficult to throw out given that NAFTA also includes Canada, the largest trading partner for the United States. The US economy is deeply intertwined with the Mexican economy and would prove difficult to disconnect without very serious consequences.” An estimated 80 percent of US multinational companies in the S&P 500 currently do business in Mexico, according to Paladin.
Instead, the incoming US leader’s proposed policies could actually benefit Latin American countries, the report said. For example, a focus on corporate tax cuts and infrastructure spending may actually help to stimulate growth and in turn bolster, rather than hurt, the prices of commodities – the exports of which account for a significant part of the economic output of Brazil and other countries in the region. “As such, we expect that contrary to initial fears, the new Trump administration will likely not trip up the positive momentum already underway in the region due to positive domestic changes and fundamentals,” Paladin said.
Rather than Trump, the three main potential risks facing Latin America are rising US interest rates, a possible slowdown in the reversal of free trade and a global economic slowdown that would hurt commodity prices, according to the report.
However, “our view is that each of these risks and their potential impact on the overall investment thesis for Latin America are well-mitigated,” the report said. “For example, rising interest rates in the US, which have been anticipated for several years now and are now substantially reflected in asset prices and relative currency values. If rising rates come with inflation, that could provide a positive tailwind for the nominal dollar prices of commodities, which would be a boost to Latin American economies.”