- Markets Insider
The Mexican peso is getting slammed as the US comes out swinging for the fourth round of NAFTA re-negotiations.
The Mexican peso was down by 0.8% at 19.0611 per US dollar at 2:19 p.m. ET after being down by as much as 1.0% about a half hour earlier.
“Renewed fears that NAFTA re-negotiation talks may break down, causing the agreement to collapse, have taken a toll on the Mexican peso in recent weeks,” Oliver Jones, assistant economist at Capital Economics, said in a note to clients.
“These falls have come despite a pick-up in oil prices, which usually supports the peso,” he added.
The currency has fallen by over 4% against the dollar since the start of October.
Mexico’s Finance Minister Jose Antonio Meade commented on the peso at an event in Mexico City on Monday, noting that the currency’s exchange rate reflects “concern surrounding the [NAFTA] trade agreement,” as well as questions about how quickly the Fed will hike rates.
The Trump administration came in strong last week for the fourth round of NAFTA re-negotiations, much to the chagrin of Mexico and Canada.
The US presented a number of tough proposals, reportedly including raising the auto rules of origin to 85%, up from the current 62.5%, and adding a sunset clause, which would lead to NAFTA expiring every five years unless all three countries agree to extended it.
One trade official told reporters Saturday “the atmosphere is complicated,” and added that his fears about some “pretty harsh, pretty horrible” demands from the US were coming true.
If the US, Canada, and Mexico can’t reach a new deal, trade among the three countries could go back to WTO rules, which would see “most favored nation” tariffs applied on Mexico’s exports to the US, according to Jones. Sources told Reuters, however, that neither Canada nor Mexico will walk away from the talks.
NAFTA is a trade deal among the US, Mexico, and Canada that eliminates most tariffs on imports, exports, and traded goods among the three nations.
Trade ballooned among the three countries since its implementation in 1994, but concentrated pockets of manufacturing workers in the US lost their jobs. US President Donald Trump has fixated on the effects of trade deals like NAFTA, but manufacturing employment has also been affected by other factors like automation.