Rick Newman
Yahoo Finance
November 18, 2016

Mexico seems to be on the losing side of the US presidential election, since incoming President Donald Trump has threatened to wall off America’s southern neighbor and demand concessions in order to continue as a favored trading partner. But Trump’s policies could have unanticipated upsides for Mexico as well.

If Trump builds his beloved wall, for instance, it will require around 7 million cubic meters of concrete and 2.4 million tons of cement, according to investing firm Sanford C. Bernstein & Co. And guess who produces just those materials, in the vicinity of the Rio Grande? “Most of the cement producers in North America are Mexican,” says Nariman Behravesh, chief economist at forecasting firm IHS. “As an infrastructure program, [the wall] could boost the Mexican economy. It could benefit Mexican companies.”

Of the 20 biggest cement producers in the world, Mexico’s Cemex is No. 7, according to trade magazine Global Cement. There are no American companies among the top 20. Trump has protectionist leanings and could decree that all cement poured into The Wall must be American. But guess what: Cemex has extensive US operations, with dozens of plants in the United States and more than 10,000 US employees.

Huge opportunity for cement producers

Trump might find a way to exclude Cemex and other suppliers headquartered outside the United States from contracting on The Wall, but that would be depriving such firms’ American employees of work. Or, not. If all the sourcing for The Wall went to firms with an American HQ, then those companies might be unable to fill orders for other clients–leaving companies like Cemex to fill the gap. If global demand for anything goes up, it usually benefits most sellers, since firms are loath to add costly capacity when a bump in demand is temporary. Instead, they ramp up production as much as possible at facilities already online, even if it allows competitors to grab part of the pie.

The Bernstein analysis estimates Trump’s enhancements to border security (a wall already exists on portions of the 1,989-mile border with Mexico) could cost as much as $25 billion. Concrete, made of cement, would be the cheapest likely material. The huge project could boost cement demand, currently growing around 4% per year, by a full percentage point once construction gets underway. That’s a big jump for a mature industry in a slow-growing global economy. And since cement is costly to ship, it would make sense to source it as close to the border as possible.

Cemex has many facilities in the region that fit the profile—on both sides of the border–as do smaller American producers such as CalPortland and Alamo Cement Company. “As ludicrous as the Trump Wall project sounds (at least to us),” Bernstein wrote in its July report, “it represents a huge opportunity for those companies.”

Mexico could benefit from Trump’s punitive impulses in at least one other way. The country’s currency, the peso hit record lows after Trump’s win, on the expectation that money could flow out of Mexico if Trump’s new policies harm its ability to export. Yet a falling peso could actually boost Mexico’s economy, since it makes Mexican exports to other countries cheaper. The dollar strengthened after Trump’s win, by contrast, which makes American exports more expensive.

When a currency plunges because of some external shock, as just happened in Mexico, that’s not necessarily a net gain, since the shock itself could harm the economy more than a cheaper peso helps. But if the peso were to stabilize at a lower level, Mexico would benefit. “The gradual depreciation doesn’t have to be problematic,” says Behravesh. “A longer-run depreciation of the peso would be good for exports.”

That may not help, of course, if Mexico finds the United States—its biggest trading partner, by far—closed for business. But that would harm many US companies as well, and throw supply chains for the auto sector and other industries into turmoil. Trade is complicated, and Trump seems bound to discover that the old adage about the devilish details is truer than ever.