Unlikely to React to U.S. Tax Overhaul

Mr. Meade, a 48-year-old Yale-educated economist, said in an interview Monday that it is too early to say for sure how Mexico would respond to U.S. tax changes, since details of the U.S. plans are still scarce.

But he said Mexico, which is now seeking to lower budget deficits after years of spending to support growth, has little room to reduce an already low tax burden. Mexico would only have to consider changes if the U.S. took some innovative action such as enacting a border-adjusted tax—a levy omitted in Mr. Trump’s April tax blueprint.

“If the changes are within parameters already used in existing tax codes, it is unlikely that Mexico or the world would have to react,” Mr. Meade said in his wooden-paneled office in Mexico’s National Palace.

The U.S. Congress is expected to address tax reform during the fall session, and the discussions could go on for months. In his tax outline, Mr. Trump seeks to cut the maximum corporate tax rate from 35% to 15% and lower individual rates.

When Mr. Trump was elected on pledges to renegotiate or pull out of the North American Free Trade Agreement, many analysts believed Mexico was heading toward a perfect storm. Oil prices remained low, hurting public finances, there were fears foreign investment could dry up and that a blowup over Nafta could hurt Mexican trade. An unpopular 20% jump in local gasoline prices in January announced by Mr. Meade’s ministry prompted widespread protests.

But things haven’t turned out that badly. The economy grew at an annualized rate of 2.7% in the first quarter, while the peso has recovered around 22% against the U.S. dollar since February and is trading at its highest level in more than a year amid optimism that Nafta talks can benefit the U.S., Mexico and Canada.

Mr. Meade said the peso still has room to appreciate.

“The peso is closer to reflecting Mexico’s economic fundamentals, but not entirely. We still think the peso is competitive at current levels, despite the important correction we’ve seen,” he said.

Mexico’s government recently raised its growth estimate for this year to 1.5%-2.5%, in line with Mexico’s growth of the last 30 years, and above that of many countries in the region.

The improving economy is helping public finances: public debt is expected to fall to 48% of gross domestic product by year-end from 50% last year, and the public sector deficit is seen at 1.4% of GDP this year—the smallest since 2008 and far from the record 4.6% deficit of 2014.

Mr. Meade said those figures could be even better as the year advances, as tax revenue is rising more than expected. “Most likely, we’ll have a better performance than what the budget anticipated,” he said.

Like his longtime friend Luis Videgaray, Mexico’s current foreign minister who preceded Mr. Meade at the Finance Ministry, Mr. Meade combines economist with politician.

A discreet, mild-mannered man, Mr. Meade got his first government position in 1997 as a midlevel official with Mexico’s pension fund regulator. He rose through the ranks as an efficient and honest bureaucrat until becoming a cabinet minister for the first time in 2011 under former President Felipe Calderón. President Enrique Peña Nieto kept him in the cabinet when taking office in 2012.

He has headed the ministries of energy, finance, foreign relations and social development, and many think Mr. Meade would be an ideal candidate for the ruling Institutional Revolutionary Party, or PRI, in next year’s presidential election. He is also cited as a possible replacement for Bank of Mexico Gov. Agustín Carstens, who is leaving the central bank to head the Bank for International Settlements.

In the interview, Mr. Meade didn’t deny his ambitions but said it was too early to talk about those issues. The central bank appointment and choice of a ruling party candidate are expected to be determined between September and December.

“In politics, a year is an eternity and cards are reshuffled every day,” Mr. Meade said.

Write to Juan Montes at juan.montes@wsj.com

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