In 2016, the U.S. election of Donald Trump initiated significant strain on U.S.-Mexico relations, with immediate economic impacts such as a steep decline in the Mexican peso and a sell-off in Mexican bonds and equities. Nevertheless, by 2017, a renegotiation transformed NAFTA into the U.S.-Mexico-Canada Agreement (USMCA), stabilizing relations and reversing market pessimism. The peso emerged as one of the world’s best-performing currencies, and Mexican bond markets outperformed most others globally, demonstrating a quick recovery that no market actors had anticipated.
As the 2024 U.S. presidential race intensifies, a similar atmosphere of anxiety surrounds U.S.-China relations, with the perception that a second Trump presidency could escalate tensions with China. Chinese stocks have already experienced declines, indicating market pessimism. However, it’s possible that a similar compromise, or “grand bargain,” could be on the table between the U.S. and China, despite current skepticism.
China’s Economic Motivations for a Compromise
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