Daily Management Review

Oil Quotes Play for Trump: Mexicans are Leaving Texas


03/02/2016


According to the Revenue Service of the United States, cash receipts from Texas border cities decreased by 6%. Every year, the border between Mexico and the US is legally crossed by 115 million Mexicans, mostly for the purpose of shopping. In recent years, the flow began to dry up.



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Donald Trump has yet to compete for the US presidency, yet cheap oil has already done what the billionaire is only dreaming. "Let's build a wall, so that they would have to pay for it" – this is famous Mr. Trump's saying in respect of the Mexican citizens. However, with the slif of quotations of hydrocarbons by 70%, the peso fell against the dollar by 26% over 2 years. With the new rate, Mexicans themselves (at least legally) are not so eager to go to the United States, even without any walls.

Representatives of small Texas businesses are surprised and even angered with the US federal tax authorities: sales on site collapsed by 50% or more, meanwhile tax revenues could not even get reduced by 6%. According to estimates by Robert Coronado, Mexicans spent several million dollars a day in Texas, and municipalities are going to have hard times without this money.

One out of every two dollars spent in the border cities of Texas is brought from Mexico. Southern neighbors buy in the States everything from major appliances and smartphones to clothing and food. As a rule, these products are presented in less wide range in Mexico itself, sometimes even possibly in deficit. However, the new price tags increased on more than a quarter (in terms of pesos) forced even wealthy Mexicans to save and buy at home more often.

Many stores in the Mexico border are being closed: there are whole streets of boarded-up storefronts. The most popular new business is suspicious exchangers, which sell cash dollars for pesos at the rate below the market.

This is not the first time when Mexicans refuse from purchases in the United States because of falling peso. The difference is that now Texas has its own problems. Manufacturing activity in the major shale formations, such as the Eagle Ford, is being significantly slowed.

According to recent data of the Federal Reserve Bank of Dallas, Texas industrial index has been falling for 14 consecutive months. Business index fell to the lowest since April 2009, unemployment rose to the highest since April 2009, with the lion's share of layoffs took place in companies producing unconventional oil. Low hydrocarbons quotes hit a double whammy onto Texas.

source: bloomberg.com






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