At the heart of every good agreement, lies an uneven set of needs and resources. Mexico lacked technology and access to capital, the US wanted cheap labour, and the Canadians had an abundance of natural resources. In came NAFTA, and after years of talks, trials and negotiations, agreement finally came in 1994.
Change comes slow when you are trying to get nearly half a billion people on the same page, but when Mexico recently overtook China as the biggest importer into the US, it put things into perspective. The numbers are simply mind-boggling. Trading volume across all three partners more than doubled and now make up as much as one third of all global trade. Great, but what about the currencies?
Even if you do not adapt the Euro, you would still want there to be little or no volatility in the exchange rates as goods travel from one country to another. Otherwise, it adds to the risks and costs of doing business. True to form, the Canadian Dollar has been relatively stable against its southern counterpart, moving in a range of 10% for the better part of the last ten years.
The Mexican Peso not so much. It depreciated by some 866% against the US Dollar before Covid. Since then, it has been on a tear, that would make Speedy Gonzales proud, gaining 40% in the last three years. Like adding fuel to the fire, as the world embarks on localising its supply chain on a massive scale, it sure helps to be close. From here, where it goes, nobody knows, but as a barometer for global trade, it is as good an indicator as any.
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