US President Donald Trump’s tariff war has been described as the biggest blow to the global trade order in a century. As the meltdown in stock markets has shown, it threatens to derail the world economy, including Latin America. From Mexican fruit farmers and auto makers to Argentine and Brazilian steel and aluminium manufacturers, numerous sectors stand to lose out if the tariffs remain.
The trade war is far from over, and so its actual impact on the region remains very uncertain. But there may be a silver lining for Latin America in the round of “reciprocal” tariffs announced by the White House on 2 April. Most Latin American countries were charged the 10% baseline tariff – with the notable exceptions of Venezuela, Nicaragua and Guyana – while countries in Europe, Asia and Africa initially saw higher tariffs, as much as 50%. US-Mexico- Canada Agreement (USMCA) trade accord partners Mexico and Canada were exempt entirely from the 10% baseline rate, though the earlier 25% tariff on automobile and steel products remained in place.
Trump has since backtracked and on 9 April announced the temporary suspension of the levies and the lowering of the higher tariffs on most countries for 90 days, to the general 10% rate (with the notable exception of China). However, the sense when the measure was first announced was that “Latin America got preferential treatment from the US,” as Santiago Capraro, professor of economics at the Universidad Nacional Autónoma de México, told France’s state-owned radio network Radio France Internationale.
Preferential treatment?
In the wake of Trump’s so-called ‘liberation day’ tariffs announcement, President Claudia Sheinbaum hailed his decision to exempt Mexico as a sign of the “good relations” her government had built with his administration, while there were expressions of relief and even gratitude in other parts of the region. Argentina’s President Javier Milei posted on social media a link to the song ‘Friends Will be Friends’ by Queen, a reference that his amicable relationship with Trump remains intact. “Trump is not a protectionist,” Milei’s spokesman Manuel Adorni said, “but rather he engages in geopolitics with these measures.” Trump “increases tariffs on countries that are protectionist or have a disproportionate level of tariffs,” Adorni added.
Even within the government of Brazil’s President Luiz Inácio Lula da Silva, who is rather on the opposite side of the political spectrum from Trump, there were cautious celebrations as to the success of diplomats in avoiding an even worse outcome. While Brazil was short-listed as one of the main targets of Trump’s tariffs in February, it managed to convince US authorities that it wasn’t one of the “evil” trading partners.
But Washington’s ‘preferential’ treatment of Latin America had less to do with benevolence and more with the fact that no country in the region, with the exception of Mexico, has a large trade surplus with the US. In recent years the US has had trade surpluses with Brazil, Argentina, Colombia and Peru (last year the US had a small deficit with Argentina for the first time in 18 years).
Latin American economies are, on average, less susceptible to trade fluctuations than other regions, simply because trade accounts for a smaller share of their GDP. They are more closed than North America, Europe, Central Asia, East Asia and the Pacific but more open than the Middle East, South Asia and parts of Northern and Sub-Saharan Africa, according to the World Openness Report, a flagship publication of Hongqiao International Economic Forum (HQF), part of the annual China International Import Expo trade fair. In Mexico trade accounts for 73% of GDP, in Brazil and Argentina only 35% and 27%, respectively.
Investors had initially shared the view that Latin America fared better than other regions. While stock markets around the world tanked on 3 April in the wake of the tariff announcement, the index of the São Paulo stock exchange, the Ibovespa, remained stable, and the real gained against the US dollar. In Mexico the peso gained more than 3% against the US currency and the BMV index rose by more than half a percentage point that day.
Negotiate or retaliate?
But the real economic impact on Latin America looks far more uncertain. For one, Washington’s 2 April tariff salvo was only the starting point for negotiations that could take weeks or months. The final outcome depends not only on Trump but also on whether governments opt to retaliate or negotiate as their best strategy.
“Argentina will move forward to adapt its regulations so that we comply with the requirements of President Donald Trump’s reciprocal tariff proposal,” Milei said during an event at Trump’s Mar-a-Lago residence in Florida on 3 April. His foreign minister Gerardo Werthein had a more nuanced response: “All asymmetries that can be corrected will be. When we correct this, we will sit down to talk.”
In Brazil the good cop, bad cop roles are inverted. Lula is the one who has been blasting Trump’s protectionist trade policy, while his diplomats have been working toward the most pragmatic solution possible. Congress on the day of Trump’s announcement approved a law granting Lula the authority to impose retaliatory tariffs, a procedural step most governments don’t require and one that was originally designed to respond to the European Union’s (EU) green tax.
Many business leaders in Brazil are saying the country has more to gain through negotiation than retaliation. Vice President Geraldo Alckmin, who has long-standing ties to the country’s industrial heartland in São Paulo, is one of those voices. “Brazil is not a problem for the US,” Alckmin told reporters in late March, arguing that Brazil doesn’t charge import tariffs on eight of the ten products that the US most exports to Brazil. Latin America’s largest economy also has not had a trade surplus with the US since 2009.
One of the leaders in the region who was most critical of Trump’s tariffs was Colombia’s President Gustavo Petro. “The neoliberalism that stood for free trade in the entire world has died,” he posted on X.
Possible upsides
While there are sectors that will undoubtedly suffer – Mexico’s auto and steel industries may be the most obvious example – there are some that stand to gain from the upheaval. Each sector has its particularities and tariffs will have different, sometimes unforeseeable, impacts.
What matters in the end is not only the absolute level of tariffs but also its weight relative to major competitors. Take Ecuador, the world’s largest shrimp exporter. Like most countries in Latin America, Ecuador was hit with the 10% general tariff. If higher levies are eventually slapped on other major shrimp exporters like India, Indonesia and Vietnam (which originally faced additional tariffs of 27%, 32%, and 46%, respectively, before Trump’s 9 April reprieve), Ecuadorean shrimp farmers could be even more competitive than they were before.
Colombia’s coffee growers are in a similar position. Their main Asian competitors are also Vietnam and Indonesia, while other Latin American competitors would also face a 10% surcharge. Another potential advantage is that Colombia produces the Arabica bean that makes up 90% of US coffee imports, whereas Brazil and Vietnam predominantly produce the sourer Robusta bean. Coffee consumers are quite addicted to their morning cup of java and don’t like replacing it with another beverage. “Despite the tariff, the end consumer is unlikely to stop buying Colombian coffee because of a marginal price increase,” said Germán Bahamón, head of the Federación Nacional de Cafeteros, Colombia’s coffee federation. “The problem would be if Honduras and Brazil managed to negotiate better tariff terms than us. That could affect our competitiveness,” Bahamón told local radio station, Blu Radio.
Comparative advantages may arise not only vis-à-vis the US but in other markets as well. Brazil’s massive agribusinesses see potential gains as an alternative supplier of basic foodstuffs to countries that adopt retaliatory tariffs against US agricultural exports, much like they were after the war in Ukraine erupted in early 2022 and disrupted grains exports from the Black Sea. Then, soaring demand and prices for agricultural commodities bolstered Brazil’s economic growth.
The US and China’s escalating tariff war means food exports from Brazil to China are at least one-third cheaper than those from the US, where farmers have cautioned they could lose out to producers in Latin America. “Tariffs are not something to take lightly and ‘have fun’ with. Not only do they hit our family businesses squarely in the wallet, but they rock a core tenet on which our trading relationships are built, and that is reliability,” said Caleb Ragland, president of the American Soybean Association. “We know foreign soybean producers in Brazil and other countries are expecting abundant crops this year and are primed to meet any demand stemming from a renewed US-China trade war.”
And it’s not just China. As the US becomes more closed to trade, other regions will be seeking alternative markets. Colombia’s Petro has instructed his cabinet to do just that. Austria has signalled it has changed its position and now supports the trade deal signed in December between the EU and Southern Common Market (Mercosur). Other sceptics within the EU could now also back the deal that would create a market of 780m consumers. The accord awaits ratification by the respective parliaments on both sides of the Atlantic.
- Re-evaluating Mercosur-EU trade deal
“We should evaluate the Mercosur agreement in a completely new context,” Austrian Economy Minister Wolfgang Hattmannsdorfer said in the wake of Trump’s tariffs announcement. Austria has been one of the staunchest critics of the EU-Mercosur deal. “We need this agreement now.”
But Latin America faces a big risk which comes not from the US import duties themselves, but rather the growing risk of a recession in the US and elsewhere, and the associated turmoil in global financial markets. That risk became more palpable when China announced its first round of retaliatory tariffs on 4 April. The move prompted a bigger selloff in US capital markets than Trump’s tariff announcement itself and dragged assets throughout Latin America down as well. If Washington’s attempt to boost its terms of trade ends up dousing global economic activity, there will be less trade for everyone, no matter who got a better deal initially.
Argentina’s public opinion favours retaliation
According to an AtlasIntel poll published by Bloomberg News on 1 April, most Argentines would handle the situation differently to the negotiations proposed by their government. Nearly 60% favour imposing higher tariffs on US goods in retaliation. In Mexico and Colombia that rate falls to below 40%.
