Trump Doctrine – Border and Migration Agreement With Mexico Likely to Produce Significant Results…

Surprisingly, Mexico now has the military resources to help

The border and migration “agreement” with Mexico is a smart move by President Trump. If you worry that Mexico won’t take any action, well, don’t underestimate the dynamic President Trump just put into play.

Financial investment flows based on expectation, probability and risk management. If you don’t think Mexico will follow-up with their end of the bargain; then you are predicting the tariffs will reappear in 90-days.

Overlooked by most of the financial pundits President Trump has pre-positioned risk management actuaries with the basis for their analysis and internal investment advice. In a similar move last year, President Trump suspended tariffs against China based on an agreement (G20 summit in Argentina). After several months and a 150 page initial agreement of principle, China walked away from their prior promises and  terms.  The tariffs against China were immediately implemented at the previous rate.

That China example with tariffs is now the baseline for all multinational investment to consider as they review their current exposure in Mexico. If any financial investor (bank or corporation) believes Mexico will not adhere to the border/migration agreement, then by extension they are accepting/predicting the Mexican tariffs will take effect in 90-days.

Put another way… President Trump has just given notice to all global business interests to organize their financial affairs toward Mexico within 90 days.

Given the less than stellar follow-through on prior promises by Mexico; and given Trump’s absolute follow-through on China; those business interests who don’t trust the Mexican government to deliver on the new promise will now use the 90-day window to re-position their exposure or exit completely.

Those interests who cannot withdraw (Ex. BMW recent $1B investment); or those interests who choose to put their trust in Mexico to deliver (likely against the advice of risk mgmt); will now start a process of engagement with Mexico requesting & demanding promises from the Lopez-Obrador administration to ensure they follow through.

Do not underestimate the power of a few dozen multinational banks and corporations calling Lopez-Obrador and his ministers demanding assurances; concrete assurances; of their follow-through. This puts massive pressure on Mexico to comply with the agreement.

Failure of the Mexican government to follow-through, isn’t as simple as breaking a political promise (ie. another broken promise etc.). This time if Mexico doesn’t follow-through, and if Trump does follow-through in 90 days, it’s not a political issue, it’s an economic issue.  In 90-days, the tenuous Mexican economy could collapse overnight.

This time it isn’t politics; or a broken political promise; no, this time it’s business. A high-stakes multi-billion business issue with multiple downstream consequences. That’s the difference with business-centric President Trump in the White House; he is not a politician.

It is easy to see the enforcement leverage President Trump just created.

This is what an apex business predator does to his/her economic or financial adversary. All the responsibility for action is on the other party. If Mexico fails, Trump wins. If Mexico succeeds, Trump wins. See how that works?

Now think about President Trump’s economic adversaries: U.S. Chamber of Commerce, Tom Donohue, The Business Roundtable, Koch Brothers, Wall Street multinationals, etc. Who are they going to pressure to protect their investment?

President Trump’s opposition cannot call Trump and attempt pressure because: (A) Trump doesn’t care about their opinion (see China example); and (B) he’s actually given the Wall St crowd what they were originally demanding, a suspension of pending tariffs.

The pressure for action is no longer on POTUS. 100% of the responsibility is on Mexican President AMLO.  If the issue isn’t corrected quickly, in 90-days the tariffs start…. And go read Trump’s deal-making history, again referencing the China example…. He won’t start all over again at 5%, he’ll start right at the place he would have been in 90-days, 20%.

Now put yourself in the position of a CEO and/or CFO of a multinational corporation with structural investment in Mexico. [Foreign corporations, not just American business interests.] Those who stay will be vested in ensuring Lopez-Obrador follows through.

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