Mexico is a country with a population of more than 127 million people and a GDP of slightly above the $1.1 trillion. The country’s economy has continued to improve after the country entered into a trade pact with the United States and Canada. Today, the US is the biggest market for Mexican goods. The total trade value between the two countries is estimated at almost $557 billion. The US has a deficit of more than $70 billion with Mexico.
The reason for this is that Mexico has lower standards and lower wages than the US. In the US, the minimum wage for employees is about $8 per hour. In Mexico, the minimum wage is about $5 a day. This makes Mexico an ideal manufacturing country for American firms like General Motors and Ford.
In the 2016 campaigns, the US president campaigned vigorously against NAFTA, which he called the worst trade deal in the world. After his election, he moved to renegotiate the deal and two weeks ago, he entered into a deal with Mexico. The details of the deal are not yet public. He also asked Canada to restart its negotiations with the US if it wanted to be part of the new NAFTA.
Canada cannot afford losing the US market. Canada exports almost all its crude oil to the United States. The volume of trade between Canada and the US totalled more than $581 billion. This makes Canada the second biggest trading partner for the US. Canada sold goods worth $299 billion while the US imported goods worth $283 billion.
Yesterday, the Mexican finance minister told Financial Times that the country was ready to sign the new NAFTA with the US even if Canada was not included. As shown below, the USD/MXN pair has moved slightly higher after the original deal was announced. However, this rally does not seem strong enough, which means that the pair could continue the downward trend.