With the possible exception of former president Carlos Menem (1989-1999), no Argentine leader has had a closer relationship with Washington than the country’s current head of state, Javier Milei. Indeed, there is probably no other foreign leader who enjoys a similar level of benevolence from US President Donald Trump. Even before he took office, Trump heaped praise on Milei in front of his audience of conservative leaders at his Mar-a-Lago residence: “Javier, I’d like to congratulate you for the job you’ve done in Argentina. Make Argentina great again.”
Now Milei wants to get more lasting benefits out of the apparent comradery between the two right-wing firebrands. Speaking at the Conservative Political Action Conference (CPAC) in February in National Harbor, Maryland, the libertarian economist insisted he wants to clinch a trade deal with the US. “I want to take this chance to announce that Argentina wants to be the first country in the world to join this reciprocal accord that the Trump administration proposed on trade matters,” Milei said. “If we were not restricted by Mercosur, Argentina would already be working on a mutually beneficial free trade deal with the US.”
During the World Economic Forum in January, Milei said that he would be willing to leave the Southern Common Market to negotiate a trade deal with the US, though he later backtracked to say that “there are ways to advance without losing the Mercosur alliance.” Under the rules of the South American trade bloc, to which Argentina belongs with Brazil, Paraguay, Uruguay, and Bolivia, any trade agreements need to be negotiated collectively because individual accords would undermine the common external tariff (CET) that makes the group a customs union. Milei has long been a fierce critic of Mercosur, saying it’s protectionist, bureaucratic, and not agile enough.
But is a US-Argentina trade deal possible? For one, the US would have to want a deal, which isn’t at all clear. Washington hasn’t entered a new free trade accord since the ones with Panama and South Korea in 2007. If anything, Trump’s predilection for import tariffs suggests more protectionism than free trade.
Milei, in turn, has three options he can pursue. He can abandon Mercosur, which would be rather traumatic for Brazil and Argentina, who have bilateral trade of between US$25bn and US$35bn per year. It would also have a massive ripple effect on countless companies whose supply chains and production sites throughout the region are based on the current rules of the game. In addition, it would require a previous authorisation by an absolute majority in both chambers of congress, which Milei currently lacks.
The second option is to negotiate with the rest of Mercosur members a downgrade from a customs union to a free trade area, thereby getting rid of the CET and allowing Argentina to set its own tariffs. Neither Brazil nor Uruguay is in favour of that, and whether it would benefit Buenos Aires is highly unlikely. Argentina has been one of the main beneficiaries of high tariffs to protect its manufacturing industry.
The third avenue is for Milei to negotiate with Mercosur members tariff exemptions on a few select goods and services. This is more feasible and, in practice, already exists for a number of items imported by each of the countries. It also makes more sense because there are few goods that Argentina exports that the US doesn’t have in abundance, or doesn’t want to protect. One of the exceptions are rare minerals, such as lithium. But of course, there is always the possibility that a trade deal isn’t actually a big priority for Milei and that he is just trying to stay on good terms with the US as he negotiates a deal with the International Monetary Fund (IMF).
US-Argentina trade
Argentina’s trade balance with the US has traditionally been a deficit, with the South American country importing more than it exports. Last year was the first time in nearly two decades that it posted a surplus, as austerity measures and the economic recession undermined domestic demand. Nearly a third of its exports are made up of crude oil and derivatives such as fuel and chemicals. Silver, gold, aluminium, and steel are the main metals, while meat and premium wine top the list in the food and beverage category that amounts to almost 17% of total exports.
