Inflation and higher interest rates follow. Real manufacturing wages decline. Mexico is especially vulnerable, because its debt is so high and its economy now depends on continuous refinancing. This could lead to a flight of capital and another financial crisis, which the new IMF line of credit cannot overcome. But unlike 1994, the United States, with its own problems might not be willing to help with more loans and may, because of a rising domestic unemployment rate, react negatively to a further acceleration of imports from Mexico.
Support grows in Mexico and Canada to dollarize their economies.
Promoters of dollarization have argued that the United States is their biggest market and accepting the dollar would eliminate uncertainties about currency movements. Opponents reply that they lose what is left of national control over their economies and that monetary policy will be run for the benefit of the United States. This could lead to some major political conflict in both nations. China and other emerging markets in Asia dependent upon exports to the United States for hard currency also find their trade balances deteriorating. Japan reacts by trying to keep the yen low against the dollar in order to regain falling exports.