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Economic snapshot for Latin America

What does Trump mean for Latin America?

The result of the U.S. presidential elections has called into question the future of U.S.-Latin America relations. Although President-elect Donald Trump did not articulate a detailed foreign policy approach towards Latin America during his campaign, trade and immigration—two of the key topics of the Trump campaign—are likely to dominate the agenda across the continent. Mexico is expected to be the hardest hit, and this goes beyond Trump’s relentless promise that his administration would build a wall between the two countries to stem the flow of illegal immigration. South American countries will be off the administration’s radar, although there is a high risk that protectionist policies could damage some of the countries’ agricultural exports to the U.S.

Investors in Mexico are nervous about Trump’s protectionist policies, and this was quite evident when the peso took a plunge on election day and fell further immediately thereafter. The currency, which had acted as a barometer throughout the presidential campaign, took the largest nosedive on record as it became clear that Trump’s promise to renegotiate the North American Free Trade Agreement (NAFTA) and build the now infamous wall could come to fruition. For now, the shock has been felt in consumer and business confidence, which could have some near-term effects in the form of weaker household consumption and reduced fixed investment. Should Trump follow through on his pledge to modify NAFTA or impose trade barriers, Mexico’s economy will be affected substantially as the economic ties between the two nations are strong, owing largely to NAFTA. The long-term effects on Mexico will largely depend on the extent to which Trump pursues his protectionist agenda.

Other trade relations could also be affected, in fact, it was recently announced that the Trans-Pacific Partnership (TPP), a free trade agreement (FTA) that incorporates 12 countries, including Chile, Mexico and Peru, has been abandoned. The U.S. already has FTAs with Chile and Peru, which have escaped Trump’s anti-trade rhetoric so far. Nevertheless, that the President-elect has given no attention to those treaties may reflect that manufactured exports from these countries to the U.S. are quite low, although the TPP would have helped to facilitate easier access to the American market for such exports.

03-dh_mpThe United States has had little engagement with South American countries, despite President Barack Obama’s promise of a “new chapter of engagement” with the country’s southern neighbors and improvements in trade facilitation. South America, Brazil in particular, appears to be out of the line of sight of the new administration and it is unlikely that there will be more active policies under Trump’s government. Nevertheless, U.S. agricultural companies lobbying Trump to introduce tariffs and non-tariff barriers on certain products represents a greater risk to South American economies. Tariffs on raw materials such as ethanol and steel could hurt Brazil, while greater U.S. protectionism against imports such as soybeans and other grains could cloud the outlook for U.S.-Argentina relations.

Source: Focus Economics

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