With left-wing populist Andres Manuel Lopez Obrador leading in presidential polls by 20%, the United States faces the prospect of a Venezuela on its southern border. Lopez is a politician in the mold of Venezuela’s late president Hugo Chavez or Chile’s Salvador Allende, a leftist whose ascension to power would likely lead to capital flight.
The Mexican peso was the worst-performing currency among emerging markets during the past week, down 5% against the US dollar after the publication of electoral polls. The last chance that the centrist parties in Mexico had to rescue the country from a left-wing takeover was a successful renegotiation of the North American Free Trade Agreement (NAFTA).
US President Donald Trump in effect blew that up on Monday morning by demanding via Twitter that Mexico put a stop to illegal emigration to the United States as a precondition for an agreement on NAFTA. No Mexican government is capable of doing this, and the Mexican foreign minister immediately responded (via Twitter) that the condition was “unacceptable.” He might have said, “impossible.”
If the Mexican economy blows up, the United States will have a crisis on its border unlike anything it has ever seen.