26 Jan 2017
Newport Beach, CA

Senate Majority Leader Mitch McConnell said Thursday that he expects President Donald Trump’s proposed border wall with Mexico will cost between from $12 to $15 billion, according to a report by Stratfor Global Intelligence.

The estimated final cost of that “Wall” would depend on such factors as terrain, the presence of necessary infrastructure such as roads, and the acquirement of land in the wall’s path. Although neither the Senate nor the House leadership has laid out the details as to how Congress or the Mexican government will pay for the infrastructure, Trump appears to have all the congressional support he needs to start the bidding process to honor his key campaign promise.

Trump also took to Twitter on January 26 to state clearly that if Mexico does not agree to pay for the wall, that “it would be better to cancel an upcoming meeting” in Washington DC later this month that was arranged with Mexican President Enrique Pena Nieto on the morning of November 9.

Despite Mexican officials’ public statements claiming that they have no intention of paying for the wall, President Peña Nieto was one of the first world leaders to congratulate President-elect Trump, stating that he was open to negotiating a number of issues.

On Wednesday evening, Peña Nieto reiterated, via Twitter, that Mexico refused to pay for the wall. After President Trump’s responded that if that were the case, they ought to cancel the meeting, Peña Nieto tweeted back, “We have informed the White House that I will not attend the working meeting planned for next Tuesday with @POTUS.” He also reiterated that “Mexico reiterates its willingness to work with the United States to reach agreements that favor both nations.”

Despite the Mexican government’s promise to intervene in currency markets to prevent any disruptive fall in the peso from the U.S. elections, Mexico’s currency crashed by 13 percent on Election Day. With the peso down by about 20 percent, it is now worth less than a nickel.

The panic selling since the U.S. elections has been worse than the turmoil at the start of Mexico’s 1994 “Tequila Crisis.” That disaster came a year after the signing of NAFTA in December 1993 by Mexico’s President Carlos Salinas and U.S. President Bill Clinton.

NAFTA suddenly opened unlimited access for American companies to Mexico’s formerly protected consumer and industrial markets. The ensuing U.S. export boom saw America’s balance of payments surplus with Mexico spike by over 1,000 percent, to $29.4 billion in 1994. The resulting capital flight caused a massive credit crunch and forced Mexico’s central bank to raise interest rates dramatically.

Mexican banks began to collapse as borrowers could no longer pay loans. The Mexican government was forced to let the peso’s exchange rate “float.” With the peso suffering a 50 percent devaluation and Mexico about to default, the country had to ask the U.S. for a bailout. Mexico still has access to a $90 billion IMF credit line granted 22 years ago.

Mexico has huge risk from a trade war with President Trump. About 90 percent of U.S.-based fortune 500 companies have made substantial investments in Mexico. According to the U.S. Bureau of Economic Analysis’ report from 2012, U.S. multinational enterprises employed 1,106,700 people in Mexico, while Mexican companies only employ 68,800 in the United States.

America’s trading relationship with Mexico is wildly unequal, but a number of U.S. companies and their workers do benefit from NAFTA. Mexico is America’s second-largest export market, with $236 billion, or 15.7 percent, of all U.S. exports in 2015. That is up 468 percent since NAFTA was signed in 1993.

Thanks to NAFTA, Mexico, with $400 billion in exports, is now the 12th-largest export economy in the world. With 80 percent of Mexico’s exports going to the United States, a trade war would devastate the Mexican economy.