That didn’t take long. One call with the President of Mexico and president Trump is reconsidering tariffs?
Was it because president Sheinbaum really convinced him that they would make a dent in the fentanyl problem, and help with the immigration crusade?
Was it just a bluff from president Trump to get talks going?
Or, perhaps, some wise person in the administration said tariffs on Mexico were a bad idea?
We have 30 days until the next chapter, and in this time period there is an investment decision that can be made.
If tariffs do not happen, the peso will hold its value against the US dollar, and CETES will give an APY of 4-4.5% greater the US treasuries, a good investment.
If the peso weakens 4-4.5% against the US dollar, CETES are not a good idea
So, why might there be no tariffs in 30 days.
First, US firms benefit from the economic alliances with Canada and Mexico.
Canada provides natural resources, and Mexico competitive low-cost labor. The US provides expertise, know-how, and tech.
This makes US companies stronger.
Second, President Trump is the one who implemented the present trade agreement with Canada and Mexico in 2020. He even heralded the partnership by saying “It’s a partnership with Mexico and Canada and ourselves against the world”.
That sounds like a good thing.
It still should be.
Third, tariffs on parties in an existing trade agreement is a violation. A violation will make any other nation skeptical about entering into a trade agreement with the US. No matter the social issues, the US needs to have willing partners for trade agreements. It cannot function alone.
Finally, tariffs will weaken other currencies and strengthen the US dollar. A stronger US dollar will hold export sales back.
Without good and trusted trading relationships, and a dollar that remains strong, the US will have a hard time exporting anything anywhere. Economically, there is little to win from tariffs.
The Mexican yield is 4.5% more than USD. The peso recently closed at 20.58. Its low in the last week, the time when tariffs were everything, was 21.30. This was also the weakest level in the past year.
If the peso moves from 20.57 to 21.3 that is 3.5%, and CETES will still yield more than US Treasuries by a little
This pick-up in return will stay in place until the US makes a decision on tariffs.
If the peso goes to 21.5, 4.5% above where it is now, Cetes were not a great idea short-term,
In the end, even the peso moves back to its near-term low of 21.3 low, it still allows a better return on CETES than US Treasuries.
CETES may be a good investment for the next month.
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