By Rodrigo Campos
Latin America is anxiously counting the times to Nov. 5, when U.S. voters will select between relative continuity underneath Vice President Kamala Harris or a return to insurance policies that triggered volatility within the area’s largest markets and economies underneath former president Donald Trump.
Commerce and tariffs, in addition to financial coverage’s impact on world rates of interest, are doubtless the most important avenues for the election to jolt the U.S.’s neighboring area. Washington’s financial warfare with China may notably rock Mexico and enhance Brazil, particularly in a tit-for-tat state of affairs.
On a broader degree, a Trump victory would doubtless ship shockwaves by the area, probably placing the squeeze on some currencies and central banks whilst international locations which can be extra tied to commodities or commerce with China may emerge largely unscathed.
Whereas the Biden administration didn’t roll again tariffs imposed by Trump on China, Harris’ plan to maintain them roughly as they’re makes her a dove towards the world’s No. 2 economic system. Below Trump, tariffs on Chinese language merchandise would bounce to round 60%.
China will even hover over talks to revise the U.S., Mexico and Canada commerce deal (USMCA), scheduled for 2026, as some items together with from Chinese language corporations’ transplant factories may cease being handled as Mexican. Automotive sector content material necessities, often called “guidelines of origin,” are prone to loom massive in these talks. Trump stated weeks in the past that he would slap a tariff as excessive as 200% on autos imported from Mexico.
“A commerce warfare (with China) would doubtless intensify within the case of a Trump presidency, and I believe that essentially the most affected nation in Latin America may very well be Mexico,” stated Carlos de Sousa, rising markets strategist and stuck earnings portfolio supervisor at Vontobel. “If Trump wins, he would most likely attempt to leverage that (USMCA) sundown clause as some stronger negotiating place, probably to alter the principles of origin.”
He added that the elevated scrutiny on the commerce guidelines relating to Mexico may imply “We’ll return, when it comes to Mexican asset costs, to the next volatility degree than what we’ve got seen within the final 5 – 6 years.”
Lazard (NYSE:) stated in a current shopper be aware {that a} common 10% tariff just like the one proposed by Trump may very well be used as leverage to forestall international locations from skirting tariffs by establishing store in U.S. buying and selling companions. Different cases of its use as leverage may embrace coverage round migration, as remittances make an enormous contribution to a number of regional economies, particularly in Central America.
South American international locations could also be in a greater place to dodge a stricter U.S. commerce regime. The funding financial institution locations and lithium powerhouse Chile on an inventory of nations with excessive publicity to the US market that may very well be largely spared based mostly on the much less replaceable nature of their exports.
Such calculations would develop into a lot much less related within the case of a Harris victory.
“If the Democratic candidate Vice President Kamala Harris wins, doubtless with a divided authorities, tariff danger would doubtless decline and we might count on decrease progress and funding situations in the US, which may result in sustained outperformance of EM property,” the funding financial institution stated in its October outlook for rising markets, revealed final week.
Whereas Mexico’s industrial export economic system would doubtless really feel the squeeze underneath a second Trump administration, different international locations which can be primarily commodities exporters may even profit.
South America may additionally profit from its decrease reliance on remittances from the U.S., which underneath a Trump state of affairs could also be taxed at 10% if U.S. Senator JD (NASDAQ:) Vance, Trump’s operating mate, follows by on his proposed tax.
Some Central American international locations resembling Honduras and El Salvador obtain greater than 20% of their GDP from remittances, that means the tax may translate into a pair share factors of GDP misplaced per 12 months. Within the case of Mexico, the most important remittance recipient within the area by greenback quantity, it may shave over $6 billion in inflows per 12 months based mostly on the 2023 estimate.
As commerce tensions with Beijing ballooned underneath Trump in 2018, China changed all its U.S. soybean imports with Brazilian ones. China is already Brazil’s largest commerce associate, and South America’s largest economic system would additional profit from much more China commerce.
“There could be a tariff consequence that helps Latin America if, because of tit-for-tat dynamic, it redirects purchases of main merchandise away from the U.S. into different suppliers like Brazil and Argentina,” stated Alejo Czerwonko, CIO for rising markets within the Americas at UBS International Wealth Administration.
“The rhetoric that tariff uncertainty can solely harm Latin America is likely to be overly simplistic.”
A Trump presidency is predicted to boost the U.S. price range deficit greater than a Harris administration, driving inflation, in addition to rates of interest, greater. Tighter monetary situations globally may additionally weigh on Latin American property.
“If Trump wins and the deficits are a bit bigger, then the disinflation course of may very well be a bit slower, and that would translate right into a barely slower financial coverage easing” within the U.S., Vontobel’s De Sousa stated. Tighter financial coverage within the U.S. has traditionally translated into subdued monetary asset costs throughout rising markets, together with Latin America.
Lastly, Argentina’s President Javier Milei, who shared a stage with Trump earlier this 12 months at a conservative gathering outdoors Washington, may see his Trump-like abrasive fashion rewarded. Milei may gain advantage from added U.S. assist if Trump have been to be elected because the South American grains exporter seeks to increase or renew its mortgage program with the Worldwide Financial Fund, of which the U.S. is the most important shareholder.
Trump would have a “greater decibel strategy to totally different international locations, much less institutional and extra private,” stated Francisco Campos, chief economist for Latin America at Deutsche Financial institution. “Due to the ideological affinity and related governing fashion between Milei and Trump, possibly Argentina may discover itself with slightly tailwind underneath a Trump state of affairs.”
