By Alejandro Ruelas-Gossi / Harvard Business Review
The Mexican peso initially fell 13% in trading after Republican Donald Trump won the U.S. presidency in a surprise result over Democratic nominee Hillary Clinton. It was the biggest drop for the currency since an economic crisis in 1994.
President-elect Trump has threatened to rip up and renegotiate Mexico’s most important free-trade agreement: NAFTA. The Trans-Pacific Partnership that would have linked Mexico in a free-trade agreement with the United States and 11 other countries is now as good as dead. To be sure, these roadblocks to further trade and investment will damage Mexico’s economy in the short and medium terms.
However, I fear that Mexico continuing its existing trade-based economic strategy will not necessarily produce different results in the long term — as it wouldn’t for any other developing country.
While it’s understandable that stock and currency markets would react this way to the outcome of the election, I believe that it’s somewhat of an overreaction. Mexico’s economy was going to have to enter into a new era regardless of who became the next U.S. president.