The upcoming U.S. election could have significant ramifications for Mexico, with trade policy, tariffs, and market dynamics being the primary areas of concern, according to JP Morgan.
More specifically, the election outcome could drastically influence Mexico’s economy, particularly in terms of trade and foreign policy. The two main contenders, Vice President Harris and former President Trump have divergent approaches, and each brings a different set of risks and opportunities for Mexico.
In a “Harris 1.0” administration, Mexico could see some upside as concerns around tariffs and trade ease. As JPMorgan notes, “Harris 1.0 presents an upside potential from current levels as tariff and trade fears recede.”
Although Harris has not made extensive comments about USMCA renegotiations, her record suggests she may focus on improving worker and environmental protections, potentially impacting Mexico’s export landscape.
Moreover, the absence of a universal 10% tariff proposal under her administration could provide stability for Mexican industries heavily dependent on U.S. trade.
On the other hand, a “Trump 2.0” scenario introduces more downside risks for Mexico, primarily due to Trump’s aggressive stance on tariffs and trade policies.
“Trump 2.0 brings increased risk on tariffs and fiscal, triggering amplified US exceptionalism and broad USD strength in the case Congress is also won by the Republicans, which is largely viewed as the most negative outcome for Mexican equities at least in the short-term,” JPMorgan strategists explained.
Trump’s proposals, such as imposing a 10% global tariff and a 60% tariff on Chinese imports, would necessitate renegotiating key USMCA provisions, which could harm Mexico’s trade relations and increase market volatility. The introduction of tariffs on auto production in Mexico by Chinese automakers could especially disrupt the Mexican automotive sector.
Immigration and security are also critical concerns. Trump has signaled a tougher stance on immigration, proposing a mass deportation initiative that could create tensions between the two countries.
In contrast, Harris’s immigration policy is more focused on addressing the root causes of migration, which could ease tensions along the border and create a more stable bilateral relationship.
The outcome of the election is also likely to impact currency markets. As such, JPMorgan strategists moved their outlook on the Mexican peso (MXN) to Market Weight (MW) from Overweight (OW), acknowledging that a Trump 2.0 victory could weaken the MXN due to rising tariffs and trade uncertainties.
However, the election may not have a significant negative impact on Mexico in the mid-term. Strategists suggest that concerns over local policy risks in Mexico are likely overstated, and with fading political uncertainty, the outlook for MXN could improve.
“Hence, they are biased to look to re-engage in bullish MXN trades after the US election,” they wrote.
Additionally, JPMorgan highlights that currency movements typically play a major role in equity market performance following the election, particularly when there are unexpected outcomes, though these effects often correct over time.
