After the worldwide shock brought on by the Brexit, the election of Donald Trump confirms many of the fears that a new, uncertain world order is in store. As I warned in a previous article on the effects of the Brexit, these election trends toward populism and xenophobia place the building of a more-open, more-egalitarian global society at risk and show that the world is headed toward more fragmentation. Precisely when the world economy is so fragile, a return to protectionism and economic nationalism could mean practically irreversible high costs that could undo decades of integration and cooperation among nations.

The main concern is that policies such as protectionism, immigration reduction, and rejection of climate-change agreements, among others, will have a huge impact on the world economy, especially in emerging economies, whose growth and development depend greatly on trade, foreign investment, environmental action, and immigration permeability. 

For now, Trump’s policies—unpredictable and undefined until he is sworn in in January 2017—have unleashed high market volatility. Mexico is especially affected by the uncertainty regarding measures that affect us directly, such as a revision of or withdrawal from the North American Free Trade Agreement (NAFTA), the deportation of millions of undocumented workers, taxing or confiscation of migrant remittances, and the construction of the famous wall. 

One of the first effects of the volatility can be seen in the plunging value of the peso against the dollar, which during the week of the election reached 20.8 to one, a historical high since 1994, and at exchange booths it is above 21 pesos. During the first nine months of the year, the peso lost 14% of its value, and since 2014, it has depreciated 48%. To fight against this loss in value, the Bank of Mexico recently raised interest rates from 4.75 to 5.25%, the fifth increase in a year from 3%, to stop the depreciation and stabilize inflation—which continues to grow and could pass the 4% mark. The Bank of Mexico could still raise interest rates to 6.75% in December.

Another possible impact would be on flows of foreign investment, which would suffer greatly due to lost opportunities with a different or nonexistent NAFTA, and to the economic sanctions that might be slapped on U.S. businesses that invest outside of the United States. The auto industry is just one important sector that could be affected by Trump’s promise to put a 35% tax on the products made by assembly plants in Mexico. Foreign investment (FDI) could see a significant drop with the uncertainty we are facing, which is halting the flow of investments until people are clear about Trump’s intentions toward multinational treaties, especially NAFTA.

In fact, the trade protectionism Trump promised during his campaign, especially against China and Mexico, could be the worst piece of news for the Mexican economy. Wilbur Ross, Trump’s probable Secretary of Commerce, has already stated that if anyone should make concessions in the renegotiation of trade relations it is Mexico, because 80% of its exports are to the United States. To set the tone, Trump has already announced that he is abandoning the Trans-Pacific Partnership (TPP), which would have brought together 12 countries, including Mexico, and would have represented 40% of the world economy. Instead, he plans to create bilateral agreements, so long as they foster the creation of jobs in the United States. If he renegotiates NAFTA with Mexico and Canada, which Trump calls “the worst trade deal in history,” he could at the very least impose barriers or duties to reduce the trade deficit with Mexico. If he were to cancel NAFTA, the economic, social and geopolitical consequences could be very costly, damaging the growth potential of the entire North American region’s economy and the wellbeing of millions of consumers who today have access to goods at competitive prices thanks to free trade.

The second source of foreign income for Mexico comes from the remittances sent by the more than 34 million Mexicans living or working in the United States, another of Trump’s targets. He has suggested financing the wall with them. Whether through taxes, restrictions on transfers, or the highly unlikely illegal confiscation of the remittances, as Agustín Carstens, the governor of the Bank of Mexico has said, the impact could be very hard for a country that in 2015 received a total of 24.784 billion dollars from remittances, funds that have triggered a good deal of consumer spending in Mexico.

These factors, combined with less demand from the United States and another likely budget cut to public spending in Mexico, will have a direct impact on the country’s growth forecast. The peso’s depreciation has not been steep enough to stimulate exports. Furthermore, even though domestic consumption set off strong in 2016, it has slowed and is still too weak to compensate for the likely fall in U.S. demand. The Bank of Mexico has lowered its 2016 growth forecast to between 1.8 and 2.3% (the IMF forecasts that the Mexican economy will close out the year at 2.1%), and some analysts estimate that it is now more likely that the Mexican economy will even fall into a recession during the first half of 2017. This weak growth could worsen, due to a boom in protectionist policies from other countries, so Mexico should take on the task of diversifying the destination of its exports and focus on other regions and countries. Perhaps the failure of the TPP could help reinforce trade relations with Asian partners such as China, or allow us to look toward the barely integrated Latin American region, beginning with Central America and the Caribbean.

What would be best for North America would be for Trump’s administration to focus on the NAFTA strategic alliance in favor of growth for the North American region and on economic social, and cultural cooperation with its partners. This includes taking responsibility for sharing with Mexico a trade exchange of more than 583 billion dollars and a 3,184-kilometer border. The new U.S. administration must leave behind the confrontational rhetoric and continue to cooperate on economic, educational, migratory, and security matters, as in recent years. Otherwise, the region could end up lagging behind other regions of the world and could lose decades of economic and social integration.   

Another area that might suffer a huge setback is the fight against climate change, which is at huge risk at a decisive moment for maintaining the spike in temperatures within a manageable range. Trump has promised to repeal the global climate-change agreements, arguing that they are a “farce” made up by China to undermine U.S. competitiveness. If he abandons or weakens the Paris Agreement, approved by 196 countries, irreversible damage could be done to the planet and the global economy, which in the long run could suffer the huge costs of a worldwide rise in temperature.

Faced with these plans, we would have to wait and see what the President-elect is going to fight for and carry out once he takes office, although some of his cabinet appointments to date make us believe he could go through with his plans. If so, those of us who have worked for so many years toward including sustainable business solutions are overcome with dismay and discouragement. As the dean of EGADE Business School, an institution that heads several projects for the promotion of corporate sustainability and responsible business education—such as the Global Compact and the United Nations Sustainable Development Goals—, I am very concerned about this step backward, but I can only reaffirm our commitment to fighting climate change and to promoting economic, social, and environmental sustainability, which we shall continue to strive for when developing leaders committed to global prosperity and in the research that entails business models that consider and promote sustainability within that prosperity. 

The shattering impact of “Brexit” affects the UK in the most direct and profound manner where uncertainty reigns; the pound sterling has already plummeted to a 30-year low, the UK Prime Minister has resigned (and half of the Labour shadow cabinet), and the country is left facing not only a painful and messy withdrawal from the EU, but also the real prospect of the break-up of the UK itself; this alongside the mammoth challenge of healing a society left deeply divided by the bitterness and vitriol that characterized the UK´s Remain/Leave campaign. Whatever else happens, the UK will never be the same again. Nor the EU, for the traumatic divorce from its second largest economic partner goes to the heart of Europe´s bold vision of integration and cohesion built on common economic, social and political interest. Not to mention its formidable achievement in building the most important single trade bloc the world, a pillar of the interconnected, interdependent global economy. Brexit signals a move towards greater global fragmentation. If Brexit at its heart signals a vote against a more integrated society, a vote against an open society and a return to a society bound by isolationism and protectionism fueled by populism, then what does the UK´s decision mean for the European Union, for the US and for the rest of the world?

Brexit is a step backwards for the “European dream” of greater integration and cooperation, the bright optimism and shared idealism replaced with more skepticism and dissent. A decade ago the EU embarked on the greatest and most ambitious expansion program of its history, and then came the Great Recession 2008-2009 from which economic recovery has been painfully slow and difficult. Austerity measures have taken their toll, the hangover of the Greek debt crisis remains, high levels of unemployment endure, the region is dealing with an unprecedented migrant crisis, plus a growing dissonance by EU citizens between national sovereignty and the EU bureaucratic focus on total integration.

Meanwhile, post Brexit global economic uncertainty is likely to set in, fueled by the constitutional issues facing the UK, the prospect for political contagion (or “Nexit”) in other EU states, increasing disintegration and isolationism and the impact in the US from the fall presidential elections. Old certainties are fading away and a new, uncertain global order is being established. Markets crave stability and important potential risks lurk in these unknowns. An enormous portion of the global map is now wrapped in uncertainty not least in Latin America.

Post Brexit, global financial markets responded swiftly and Latin America is not unaffected in the short-term, nor will it be immune to the potential secondary impacts of Brexit. The immediate reaction to the UK´s decision to leave the EU saw a sharp fall in the Mexican peso, which plunged 7.1% against the dollar to a record low of 19.50 to $1. Mexico´s Central Bank, Banco de México (Banixco) provided reassurances that Mexico has the necessary financial resources to defend the peso from speculators and will use them as required and that a decision on whether to increase Mexico´s key interest rate will be made at the June 30th board meeting following an analysis of the impact on inflation. Mexico´s Treasury Secretary announced a cut in federal spending by 31.7 billion pesos ($1.6 billion dollars) as a stability measure.

With an uncertain global context, a flight by investors from emerging markets to safer assets can be expected. In Latin America this means slower and scarcer inward investment flows and that affects our economic outlook. So Mexico will likely be affected by wider global financial market impacts, weaker foreign direct investment inflows from the UK, Europe and of course, the impact of Brexit on the US, Mexico´s key trading partner.

There are clear political parallels in the US with the UK; the same populist rhetoric has taken hold across important segments of the US population who undoubtedly feel isolated or believe they have been abandoned by the impact of globalization, whether in their jobs or prospects, benefits or wellbeing. US global disengagement, to a greater or lesser degree, is a key theme in the US presidential campaign discourse. The presumptive Republican nominee has made no secret of his plans to erect a border wall between Mexico and the US, impose high tariffs, rescind the NAFTA agreement along with other US trade alliances, withdraw from global military engagement and deport undocumented Mexicans in the US. The likely Democratic nominee has referred to the need for the renegotiation of agreements deals that are beneficial for the American people, and has opposed many aspects of the Trans Pacific Partnership agreement. Emboldened by the Brexit vote in the UK, the sentiment in the US towards a greater level of protectionism and self-interest may grow.

Mexico faces these fresh challenges as it deals with existing issues: the ongoing impact of currency devaluation, lower oil prices and sluggish economic growth, as well as heavy trade dependence on its near neighbor. It is a challenging scenario indeed, but it is an important moment to focus efforts. Taking advantage of the many trade agreements that Mexico already has legally instrumented is key to Mexico´s prosperity. The conditions to diversify its trade and address the productivity lag must be encouraged, so as to boost Mexico´s competitiveness.

Since 2012, the price of housing has increased by an average 5.5 percentage points. While it has been observed that behind this increase is, among other factors, increased price of cement and concrete, these actually contributed only 0.1 percentage points higher to the final price of housing.

A study by researchers from EGADE Business School and the Tecnológico de Monterrey Department of Civil Engineering concluded that the cost of cement affects on average 5.6% of the direct cost of construction and a maximum of 4.2% of the final average price of a home in Mexico. This means that if the price of cement went up 10%, the construction costs and the final price of a home would increase 0.56% and 0.4%, respectively.

According to the study, the impact of the price of cement varies by category of homes, ranging from 1.2% to 9.8%, with categories merged. However, it was concluded that from 2004 to today, cement and concrete have seen the lowest cumulative price inflation of all building materials, so the prices of these materials have not substantially affected the costs of residential construction. 

Machinery and equipment, labor costs, the costs of land, and other outside factors not related to construction, such as profit margins, paperwork, and financial costs, were identified as factors that greatly influenced the price of homes.

Other results showed that cement and concrete have made up 0.4 percentage points of the 3.5 percentage points of the annual average increase of the cost of home construction since the housing crisis began in 2012, according to estimates from a series of published prices.

Similarly, the study calculated the linear correlation in each state, ranking them from highest to lowest home prices over the last eight years and in sub-periods within this same measurement, and found that there is no significant link between them and consumables indicators, such as general construction costs or the costs of materials or machinery and rented equipment, or labor costs. 

These data indicate that the difference in the final price of homes by state in Mexico is more a result of particular aspects of each area, such as the microstructure and profit margins with developers and in the real-estate industry, the costs of land, and the protocols and other transactions required in each area. 

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The independent study, which analyzed data from 2004 to 2016, was carried out by Jorge A. Martínez-González, CFA, the director of the EGADE Business School, Monterrey campus Master in Finance, with help from Salvador García, the director of the Tecnológico de Monterrey Civil Engineering Department, and Miguel Davis, a full-time professor in the same department. The study was commissioned by the National Cement Chamber.