The start of the Trump administration will bring about several changes in the United States:
– Orientation to less regulation and intervention by the government.
– More encouragement of domestic production to the detriment of globalization.
– Protectionism that will make the country more independent but could be inflationary
– The decline of the Democrats’ progressive policies that led to extremes such as gender-switching men who can compete against women
– DEI (diversity, equality, and equity) policies that favored minorities over meritocracy.
– Definite will be a significant change regarding immigration, closing many of the loopholes at the border, some legal, such as applying for political asylum and never showing up for a judge’s appointment, and others sneaking in illegally.
Trump’s economic program is based on a massive tax cut (exempting tips, overtime, Social Security payments, etc.) and restoring the tax reforms he imposed in his first administration, which expire this year. The second step is to rapidly increase oil production by lowering the price of oil. Simultaneously, it eliminates the requirement that all cars be electric by 2050 and that no more gasoline cars be sold after 2030 (California law). Also, removing bans such as using gas furnaces and other provisions mandated by climate change proponents.
On the other hand, the president-elect proposes a series of tariffs on all imports, even contravening free trade agreements. The rationale is that they will generate revenues similar to those lost due to the lack of tax collection. I am concerned about who will pay for these tariffs, as it is unlikely that producers will absorb them, and it is very likely that at the end of the day, they will result in higher prices that will have to be paid by consumers in the United States. In the past, we saw China devalue its currency to compensate for the 20% tariffs imposed 8 years ago. This time, it is not feasible for everyone to try that solution, nor is it in the best interest of the U.S., which does not want a strong currency that will affect its exports and jeopardize tourism.
Creating the Department of Government Efficiency (DOGE), a new agency charged with finding and eliminating wasteful spending in government, is an excellent idea on paper. We will see how it works in its implementation, mainly since the agency aims to detect such superfluous spending but does not have the authorization or the means to implement its suggestions.
It will be interesting to see how massive the deportations of undocumented immigrants proposed by Trump are since many industries in the United States depend on these workers for their operations, such as agriculture, construction, and hospitality. I hope they will deport the undocumented criminals and establish a legal immigration policy, even if it is temporary, so as not to affect the domestic economy. The movement of the world to the right is impressive. We see that much of Europe, Asia, and several Latin American countries have shifted their policies on migration, fighting inflation, combating climate change, and opening their borders in favor of a more conservative and protectionist stance.
In foreign policy, Trump is going to have a very different position than President Biden since his proposal for the war in Ukraine consists of pushing to end the conflict and stop sending weapons. In the Middle East, he is going to force Hamas to return hostages and seek a solution where the terrorist group ceases to be a constant danger to Israel. It will intervene in the elimination of other Iranian-sponsored terrorist groups. It will do everything possible to end the nuclear aspirations of that country, which has become the bane of the free world. I am very concerned that the proposed new initiatives, such as the purchase of Greenland, the recovery of the Panama Canal, or the annexation of Canada as the 51st state of the American Union, are real and not just a bargaining position, as I do not believe that the world will be better off with a new policy of colonization.
The U.S.-Mexico relationship will have very complex times ahead, starting with the threat of a 25% tariff on everything imported from Mexico. Trump demands full cooperation on the immigration problem and the fight against fentanyl. The comments about designating the cartels as terrorist groups and sending U.S. troops to fight them are indeed very controversial issues. I do not believe that Mexican nationalism or the refusal of U.S. citizens to open a new front of soldiers in another country is favorable for an armed intervention in Mexico, but anything is possible in 2025.
The U.S. economy continues to show strength, with unemployment at 4.2%, job creation in November of 227,000, and a drop in the number of people unemployed for more than 90 days. The number of job openings rose to 7.51 million, higher than the total number of unemployed. The population reached 340.1 million, an increase of almost 4 million in one year, of which 2.7 million were immigrants, the lowest domestic growth in history. The country’s primary industry, construction, continues to be affected by the increase in mortgage rates. Although there is already more inventory than in the last 3 years, the purchasing power has been reduced by the inflation in the price of houses and the high cost of financing.
The reduction in rates determined by the FED, which in December reached 1% for the year (from 5.25% to 4.25%), did not have the effect of lowering market rates to the extent that the treasury bond rose almost 0.75% in the last two months. This is the interest rate that credit cards and banks charge on their construction loans and mortgages. There are 290 million light cars, and the average age of these cars is 13.9 years, the highest figure since this statistic began to be taken. Sales in 2024 were down 4.7% compared to the previous year, and the reduction was mainly due to electric cars, which no longer seem to be what buyers are looking for, especially in the center of the country.
The wealth of Americans reached $168.8 trillion due to the increase in the value of real estate and the appreciation of the stock markets. This figure equals 6.17 times the country’s 2023 GDP and 129.8 times Mexico’s 2023 GDP. Imports for the last 2 months reached 746B dollars, of which $312B came from China, figures almost 21% higher than last year, primarily because of the threat of 2025 tariffs. Interestingly, the ban on exporting advanced technology and chips to China became stricter, and despite this, competition in artificial intelligence, telecommunications, and other areas became much more substantial.
In a survey by Barron’s newspaper, 77% of CEOs of major U.S. companies are optimistic that the environment for their companies will be more favorable in the Trump administration than it was in Biden’s 4 years. It will be very interesting to see how the lawsuit between the U.S. government and the Chinese company that owns TIK TOK ends since, in January, the case was to be heard in the Supreme Court, and Trump asked for the decision to be postponed. The proposal is that the company be sold to American business people or leave the country, as there are fears that China is taking over a lot of intelligence from the U.S. population.
The economic situation in Mexico was stable in the first months of Sheinbaum’s administration, but the general feeling is gloomy. The new regime is very similar to the previous one, the cartels are still very active, the assassinations continue and the reforms authorized by Congress have already gone into effect, removing most of the independent agencies that protected the people and regulated the government. The much talked about judicial reform continues, and in 6 months, there will be elections for all judges with the widespread fear that the judiciary will be subordinated to the Executive and will not have the independence it should have. Claudia Sheinbaum announced 20 initiatives that she will send to Congress, including the affirmation of non-reelection, the fight against nepotism, and proposals to combat organized crime. Nothing is new, but it is a step in the right direction.
As usual, I note the positives and negatives for last December.
Positives
– Manufacturing PMI reached a 6-month high.
– Good advance in reserves to $228.392 billion. For the year, they grew by $16.067 trillion, 7.5% more than in 2023.
The minimum wage increased to $13.75 in the country and $20.70 in the border, the lowest increase in 6 years.
– Army seized 1 ton of fentanyl, largest operation in history
– Inflation remained at 3%, within the band acceptable by the Bank of Mexico
– From January to November, 3.21 million automobiles were exported
– Both airports and domestic airlines had the first positive month of the year
– Loan portfolio grew 8% in November, the highest increase in 4.5 years
– S&P ratifies investment grade rating for Mexican debt
– Tax collection increased by almost 7%.
Negatives
Most notable are the headwinds facing Sheinbaum’s administration, starting with the budget deficit left to her by AMLO, which is 5.9% of GDP, which she pledged to reduce to 3.9%. The government has few resources and has cut the budgets of almost all agencies except the Ministry of Defense. Other problems are the decline in nearshoring due to possible tariffs, the magnitude of deportations, and the potential impact on domestic industry if exports are reduced.
– Economists (survey of 40 prominent professionals) conclude that GDP will grow 1.5% in 2024 and only 1.2% in 2025. Inflation is expected to rise to 3.8%.
– Worst year for formal job creation in the last 15 years.
– Business confidence contracted in November
– ANTAD reported that its affiliates, consumer stores, had a worse year than 2023
– Industrial activity declined 1.2% in October and 2.2% since that date
– Mazda canceled the project to set up a factory in Mexico
– Mexican debt in the hands of foreigners reached the lowest in the last 14 years
– The Mexican stock market had the worst performance in the world, with a year-to-date drop of 13.7%.
The case of Infonavit deserves special attention, as the government intends to take control of the Institute, which, until today, has been represented by one-third of the workers, one-third of the employers, and one-third of the government. It is abusive on the part of the government to keep the fund and change the nature of the agency created with a good balance of all the interested parties.
The situation in Israel remains very complicated, but a possible ceasefire with Hamas is imminent. The Israeli army’s progress in the fight against terrorist groups has been impressive, and I expect that with Trump’s entry, there will be a significant reduction in conflict in the region. The economy had a good rebound in Q3 with 3.8% annualized growth, but despite this, JP Morgan cut the full-year forecast from 1% to 0.5% and from 3.7% to 3.3% for 2025. The Central Bank maintained the discount rate at 4.5%.
Undoubtedly, the war’s impact continues to affect the economy’s growth through lower tourism, foreign investment, and the number of reservists still in the military but not in their jobs. It will be interesting to see how the relationship with Turkey turns out since the events in Syria bring the countries’ geographic rapprochement closer, but not their very different ideology.
This will be a problem for Trump, as two of his regional allies have a bad relationship with each other.
China announced a stimulus to its economy of 441 billion dollars to try to counteract the negative impact of Trump’s tariffs; at the same time, it threatened the United States that it would not sell it the materials known as “rare earths” that only they have and are necessary for the manufacture of semiconductors. Today, China produces 38.4% of all automobiles worldwide, whereas in 1968, it produced only 1.4%. South Korea has already changed president twice in the last month, after a ridiculous curfew ordered by the first and the lack of action by the second.
Most countries worldwide are lowering their interest rates to boost their economies, while Brazil is going the other way. It has been unable to control inflation, and the perception that President Lula has no control over the fiscal deficit has caused its currency to drop considerably. Inflation continues to grow.
Milei has succeeded in lowering inflation from 27% to 2.3% per month, and everything looks good except for the increase in the number of people living in extreme poverty. Hopefully, the unions will allow him to continue with the reforms initiated, as they have already started to call strikes against the austerity measures imposed by the current government. Sovereign bond yields have dropped from 31% to 10.7%, the best performance in the world.
Europe is on the brink of recession, with Germany already in full contraction. Not even lowering interest rates seems to have a positive effect on consumption. Population contraction and the reaction against Muslim immigration do not bode well in the short term for the economies of the old continent.
Portfolios had mixed results. Stocks rose slightly despite closing the year with three consecutive days of losses, and bonds fell back a little more than 1% as interest rates rose. For the full year, the S&P was up 23.3%, the Dow Jones 12.88%, and the Nasdaq 28.64%, driven by the seven majors, the largest tech stocks that led the market. As for bonds, the return for the year was only 1.5% due to rising interest rates despite the Fed cutting 1% off the discount rate.
After reaching an all-time high of nearly $107,000 for the month, Bitcoin closed at $93,450, a 126% appreciation for all of 2024. Gold closed at $2,639/oz, down from $2,800 at the end of October but $605 above the start of the year. The dollar slightly increased against the major currencies, but the Brazilian real and the peso had a very bad month.
The peso, at $20.81, is at its highest point of the year. It started at $17.21, up 20.9%, equivalent to a drop against the dollar of 17.3%. I predict it will remain in a $20.50-$21.25 band until Trump’s 25% tariff policy is defined. If it is implemented, the peso could fall to $23.
I hope 2025 will be a year of health, peace, and many achievements for you and your families.
Further Reading: