The Trump Effect on Latin American Economies
With Donald Trump decisively beat Kamala Harris in the race for the White House, analysts and experts alike suggest that there will be far reaching economic consequences for the rest of the world. It is suggested that if the President elect only enacts a small portion of his election promises, such as financial demands on NATO partners, deregulation and increased oil drilling and tariffs, the negative effect on inflation, government finances, interest rates, and economic growth will be felt by countries across the world. In Congress, the Republicans have already secured the Upper House (the Senate), and if predictions are correct they could secure the Lower House (House of Representatives), which will make it easier for the President Elect to push through his policies.
One of Donald Trump’s key economic pledges is tariffs, which includes a 10% to 20% tariff on all imports into the United States except for China who will be hit with a 60% tariff on all exports to the Unites States. Experts advise that of all the policies, the “Trump Tariff” policy is likely to have the largest global impact as they lower growth for exporters, have a negative effect on public finances and inhibit global trade. The President elect said during his campaign for the White House “Tariff” is his favourite word and is “the most beautiful word in the dictionary”. Interestingly, and supporting his own stand on tariff’s, Trump took the unusual step of threatening John Deere, (the agricultural manufacturer) with a 200% tariff if they moved production to Mexico.
Below is an overview by experts on selected countries in Latin America as to what effects the economic policies of President elect Trump will have on their economies.
Latin America
The re-election of ex-President Donald Trump may well bring important and significant challenges to Latin America. The President elect has already stated he will place a 60% tariff on all Chinese exports to the United States, so how will he respond to China’s growing influence in the region? Many South American countries find it difficult to overlook China’s direct economic commitments, so the Trump administration may well have to prioritize regional economic policy.
- Brazil
On Wednesday 6th November 2024, when it was announced the Donald Trump would be re-entering the White House, the Brazilian finance minister Mr Fernando Haddad said, “The world woke up on Wednesday more tense than it was yesterday”. Indeed, such remarks were echoed to an extent in other parts of the government where certain factions were advocating a delay in planned public spending cuts, due to the expected ripple effects of a Trump administrations effect on global financial markets.
However, many analysts in Brazil feel that a Trump administration will create a global liquidity vacuum, so there must be immediate implementation of fiscal measures (spending reductions of circa R$40 – R$60 Billion (USD7 – USD10.5 Billion) ). Furthermore the protectionist policies of the incoming President including tariffs could well jeopardise Brazilian industrial exports to the United States. China and Brazil have vey close economic ties and if the protectionist policies of the incoming administration slow down the Chinese economy, the agribusiness sector of Brazil could find itself in trouble. Some experts advocate that Trumps policies could keep inflation high in the United States and will therefore keep interest rates high in both countries, which may well lead to less direct foreign investment in Brazil.
- Mexico
President elect Trump has already made his feelings and intentions towards Mexico exceptionally clear. At a rally In North Carolina, on the very last day of campaigning Donald Trump made a precise policy decision to his supporters. He announced that Mexico’s President Claudia Sheinbaum would be the receiver of one of his first telephone calls in which he would advise that if she did not stop the onslaught of drugs and criminals coming into the United States, he would impose an immediate tariff of 25% on everything coming out of Mexico bound for the United States.
Indeed, former foreign minister Jorge Castaneda said that a Trump administration was a nightmare scenario for Mexico as the President elect’s victory was partly due to his standing on and one of his chief promises to end illegal immigration across the southern border of the United States. Early indications of looming problems for Mexico was when the presidential race was called for Trump the Peso hit its lowest level against the US Dollar since 2022 at 20.8 to the dollar.
Furthermore, Mexico for some years has been enjoying a “Nearshoring bubble” and as experts line up to say that reshoring and protectionism is back, several companies in America have paused planned investments in Mexico. This includes the President elects close friend and confidant Elon Musk, who owns Tesla. It is well known that the President elect hates trade surpluses and Mexico in 2023 had a trade surplus of USD152 Billion, the second largest deficit after China.
The Mexican economy is driven almost exclusively trade with 83% of its exports going to the USA. Some economists are warning that even a small increase in tariffs could lead to a rise in unemployment, a rise in poverty, reducing Mexico’s long-term economic growth and prompting more Mexican nationals to migrate to the United States. Analysts point to the fact that few world economies are more tightly bound than Mexico and the United States with some experts predicting that that under a worst-case scenario the economy of Mexico could fall into recession, the Peso will depreciate, and inflation will rise.
- Argentina
President Javier Milei was the first foreign leader to meet President elect Donald Trump after his stunning victory in the 2024 United States presidential election. President Milei also said of President elect Trumps victory “that the forces of heaven were on our side”. Indeed, following the election of ex-President Trump the Argentinian financial markets enjoyed a significant upturn stemming from the anticipated closeness of President elect Trump and President Milei. Experts suggest that as an ally of the current Argentinian administration, President elect Trump, as he did in his first term, he will promote US investment in Argentina’s oil sector.
Further signs of optimism after a Trump victory was on 6th November 2024 where Argentinian US Dollar denominated bonds enjoyed gains in early trading plus the country’s risk index dropped to its lowest level since 2019 at 872 basis points. This index is indicative of what premium investors demand to hold local bonds compared to equivalent US debt and the S&P Merval, which is Argentina’s main stock index rose by more than 3%.
The last time Argentina had a right wing government (President Macri 2015 – 2019) the country enjoyed a close relationship with the Trump administration, who were instrumental in securing an IMF loan in 2018 of USD44 Billion. Many commentators see a Trump administration as beneficial to Argentina, which has already been good for Argentinian assets, but long-term implications, as always, remain uncertain.
- Colombia
A big problem for the Trump administration will be Colombia, where President Gustavo Petro and his administration have been openly critical of the United States’ role in global affairs. President Petro was one of the last Latin American leaders to congratulate Donald Trump on his re-elevation to the White House. In fact, he only acknowledged the ex-Presidents victory on X (formerly twitter). He further indicated his feelings against America’s pro-Israel stance and their blockage of Venezuela, showing ideological affinity with Cuba.
The Columbian’s President stand on Gaza and Israel has deepened an already strained relationship with Washington, and he furthermore severed diplomatic ties with Israel, accusing them of Genocide. Columbia also represents the largest source of cocaine entering America, and President Petro has not been as enthusiastic regarding the eradication of its production. Donald Trump has a zero tolerance drugs agenda, and the United States is the largest donor of foreign aid to Colombia which maybe under threat in the future.
The Colombian government are presently trying to complete a deal with the United States for a USD40 Billion climate change investment plan, and if they cannot secure this agreement before the 20th January 2025, experts suggest that any negotiations with the Trump administration would come with substantial caveats, if indeed an agreement could be reached. An alternative could be China, but experts agree that would only increase the current tensions, and the outlook for Columbia’s economy maybe bleak unless President Petro comes to some agreements with President elect Trump’s administration.
- Peru
China is Peru’s main trading partner, and if President elect Donald Trump carries out his threats regarding a 60% tariff on all China’s exports to the United States, this could have an indirect negative effect on the economy. The intended tariff on China’s exports to America would mean a potential slowdown in the country’s economy which in turn would translate into lower prices and falling demand for Peru’s exports of copper, iron ore and other raw goods.
Data released by Peru’s Foreign Trade and Tourism Ministry show that between January and August 2024, China accounted for USD16.7 Billion or 36% of Peru’s exports of which total mining exports accounted for USD12 Billion or just under 75%.
Although Peru export quite a high volume of products to the United States, these are products they are happy not to protect, and according to data released by experts with projections up to 2029 under a Trump administration exports could only fall by 1%. There are also opportunities for Peru as, while China may be economically harmed by tariffs, Peru could step in with more exports such as textiles and safety glass for cars. It should also be noted that China’s President Xi recently inaugurated a USD1.3 Billion mega port (Chancay) in Peru which experts suggest will become South America’s biggest shipping hub.
- Paraguay
Regional experts on South American countries suggest that the election of ex-President Donald Trump opens the door for closer relations between Paraguay and the United States. At a time when a number of South American countries are aligning themselves more with China, Paraguay can present itself as a strong ally to the United States. Under the current President Santiago Pena, Paraguay has probably the most effective cabinet and administration in its history.
In contrast to a number of other South American countries, Paraguay maintains diplomatic relations with Taiwan, has been an ally of Ukraine and a vocal supporter of Israel in their current war in Gaza. Such a political stance should be music to the ears of President elect Trump, and it is therefore essential for economic growth that Paraguay catch the eye of the President elect at a very early stage. Paraguay is uniquely situated between Santiago, Sao Paulo, and Buenos Aires, giving the country the opportunity to become a regional hub.
There is also considerable room for economic growth between the United States and Paraguay: where in 2023 bilateral trade was worth USD3 Billion, whereas Columbia’s was circa USD39 Billion. Paraguay also enjoys a number of sources of green energy, and the country’s ability to produce substantial amounts of green hydrogen through harnessing electricity from their two hydroelectric dams (Itaipu and Yacyreta). Global demand for green hydrogen is expected to dramatically increase in the coming years driven by international commitments to reduce carbon emissions. Paraguay appears to be well placed to benefit economically from a Trump presidency, hopefully President Pena, whilst a recognised ally of the United States, can become a close friend of President elect Donald Trump, thereby enhancing closer economic ties.
Final thoughts
There are some experts suggesting that the Trump victory actually presents a unique opportunity for the countries of Latin America. As many countries are confronted by political instability, climate change, and economic challenges, the leaders should follow mechanisms of a collaborative nature to create one voice. They could then adopt strategies for instance that could see them acting as a regional bloc for trade purposes, help address the crisis in Venezuela, attack climate change and organised crime together. Whilst a Trump presidency often creates a polarising effect, this time he might bring the countries of Latin America together.
